We came across a bullish thesis on LSB Industries, Inc. (NYSE:LXU) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on LXU. LSB Industries, Inc. (NYSE:LXU)’s share was trading at $7.38 as of Jan 8th. LXU’s trailing and forward P/E were 200.25 and 23.36 respectively according to Yahoo Finance.
A farmer carrying a bag of fertilized over his shoulder signifying the fertilizers the company produces.
LSB Industries (NYSE:LXU) offers a compelling case for agricultural exposure amidst the cyclical dynamics of the sector. Agriculture thrives on independent cycles, often driven by weather events that periodically result in crop failures and elevated commodity prices. Currently, the agricultural sector is in a lull, with farmers’ cash flows constrained, creating an opportunity to invest in undervalued agricultural stocks. LXU, a small North American nitrogen fertilizer producer, stands out due to its mix of industrial and agricultural products. Approximately 40% of its output caters to industrial and mining applications on stable, multi-year contracts, while 60% serves the spot agricultural market. Despite fertilizer’s cyclicality, LXU is undergoing a strategic pivot to focus more on its industrial business, offering resilience and predictable cash flows.
In 2022, LXU experienced a bumper year with peak EBITDA reaching $378 million and its market capitalization briefly exceeding $2 billion. Currently, with a reduced market cap of $548 million, LXU remains at breakeven due to elevated capex associated with its transformation. This “Pathway to $200 Million” strategy aims to enhance EBITDA through production capacity increases, facility upgrades to produce higher-value products like nitric acid and UAN, and a carbon capture joint venture that will contribute $15–$20 million annually. By 2026, when capex reverts to a sustaining level, LXU is expected to achieve $200 million in annual EBITDA, offering a significant rerating potential.
The company boasts a strong balance sheet with $200 million in cash, even after navigating challenging conditions in the fertilizer market. It has consistently returned capital to shareholders through debt reduction and aggressive stock buybacks, having reduced its float by 20% in two years. However, insider ownership remains a concern, with the private equity firm Eldridge Industries still holding a 21% stake, down from 60% two years ago. Eldridge’s ongoing sell-down has likely pressured the stock, but its eventual exit could act as a positive catalyst.
Investors in LXU have five distinct upside opportunities: a potential spike in agricultural commodity prices, the completion of the $200 million EBITDA pathway, continued share buybacks, a valuation rerating from the industrial pivot, and macroeconomic tailwinds from falling interest rates boosting demand for its industrial products. With $250 million in NOLs enhancing its attractiveness, LXU is well-positioned for substantial growth. The stock represents a rare opportunity to capture cyclical agricultural gains while benefiting from a strategic transformation that ensures long-term stability.
LSB Industries, Inc. (NYSE:LXU) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 18 hedge fund portfolios held LXU at the end of the third quarter which was 15 in the previous quarter. While we acknowledge the risk and potential of LXU as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LXU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.