CF Industries Posts Strong 2025 Results, but Cyclical Vulnerabilities Loom

What happened

CF Industries announced full-year 2025 net earnings of $1.46 billion and adjusted EBITDA of $2.89 billion, driven by firm nitrogen prices and high asset utilization. However, the DeepValue report highlights that these earnings are fragile, as historical data shows a 10% drop in nitrogen prices cut 2024 net sales by $716 million despite lower gas costs. In the first nine months of 2025, higher nitrogen prices boosted sales, but rising natural gas costs reduced gross margin by $249 million, exposing ongoing margin pressure. CF's aggressive buybacks and multi-billion-dollar low-carbon projects, while funded from current cash flow, raise capital allocation risks if nitrogen prices normalize or gas spreads compress. Thus, the strong headline numbers mask underlying cyclicality and potential earnings volatility, aligning with the report's 'WAIT' rating for a safer entry point.

Implication

The earnings surge is primarily due to favorable nitrogen prices, but CF's history shows margins can quickly erode with price declines or gas cost spikes, as seen in 2024. Aggressive capital returns and decarbonization capex, though currently manageable, could strain the balance sheet in a downturn, especially with large projects like Blue Point ramping up. The DeepValue report recommends waiting for a price below $70 or confirmation of sustained $2.0B+ EBITDA and robust free cash flow through market normalization. Key near-term monitors include nitrogen price trends, Henry Hub-TTF spread compression, and management's capital allocation decisions in response to any softening. Therefore, maintaining a patient stance is prudent until risks around cyclical earnings and project execution are better assessed.

Thesis delta

The strong 2025 earnings report does not materially shift the thesis, as it confirms mid-cycle performance but also underscores the sensitivity to volatile inputs like nitrogen prices and gas costs. It reinforces the need for vigilance on capital allocation and margin sustainability, rather than signaling a durable upgrade. Thus, the recommendation remains to wait for a cheaper entry or more robust evidence of earnings resilience through the normalization phase.