CVR Partners, LP (NYSE: UAN)

Transcription

1 Aug 19, 2016 CVR Partners, LP (NYSE: UAN) $6.83 USD ( As of 08/18/16 ) Zacks Rank 4-Sell Style:Value: Growth: Momentum: VGM: Data Overview 52 Week High-Low $ $ Day Average Volume 0,594 Beta 1.21 Market Cap M Dividend / Div Yld $0.68 / 9.96% Industry FERTILIZERS Industry Rank 251 / 265 (Bottom 5%) Current Ratio 2.81 Debt/Capital 48.19% Summary CVR Partners swung to a loss in second-quarter 2016, hit by a major plant turnaround and charges related to its purchase of Rentech Nitrogen Partners. Adjusted earnings missed the Zacks Consensus Estimate. Revenues jumped year over year and beat expectations. CVR Partners remains exposed to headwinds from lower nitrogen fertilizer prices. Its operations are also subject to the risks of production outages. The company also faces intense price competition. Elements of the Zacks Rank Agreement Estimate Revisions ( days) Net Margin 2.01% Price/Book (P/B) 1.17 Price/Cash Flow (P/CF) 9.54 Earnings Yield 8.32% Q1 (Current Qtr) Q2 (Next Qtr) F1 (Current Year) F2 (Next Year) Debt/Equity 0.93 Revisions: 2 Up: 0 Down: 2 Revisions: 2 Up: 0 Down: 2 Revisions: 1 Up: 0 Down: 1 Revisions: 1 Up: 0 Down: 1 Value Score P/E (F1) Magnitude Consensus Estimate Trend ( days) P/E (F1) Rel to Industry PEG Ratio 1.46 P/S (F1) 2.20 P/S (TTM) 2.51 P/CFO 9.54 P/CFO Rel to Industry 6.44 Q % Q % F % F % EV/EDITDA Annual Growth Score Upside Zacks Consensus Estimate vs. Most Accurate Estimate Proj. EPS Growth (F1/F0) % Hist. EPS Growth (Q0/Q-1) Qtr CFO Growth Yr CFO Growth Most Accurate: 0.02 Zacks Consensus: Most Accurate: 0.10 Zacks Consensus: 0.06 Most Accurate: 0.14 Zacks Consensus: 0.58 Most Accurate: 0.51 Zacks Consensus: 0.46 Return on Equity (ROE) 16.18% Q % Q % F % F % (NI - CFO) / Total Assets Asset Turnover 0.23 Surprise Reported Earnings History Momentum Score 1 week Volume change 10.09% 1 week Price Cng Rel to Industry 4.35% (F1) EPS Est 1 week change 0.00% (F1) EPS Est 4 week change % (F1) EPS Est 12 week change % Reported: 0.01 Estimate: 0.21 Q End 06/16 Reported: 0.25 Estimate: 0.21 Q End 03/16 Reported: 0.26 Estimate: 0.17 Q End 12/15 Reported: Estimate: 0.03 Q End 09/15 Average 4 Qtr Surprise (Q1) EPS Est 1 week change 0.00% 2016 Zacks Investment Research, All Rights Reserved 10 S. Riverside Plaza Suite 10 Chicago, IL 6

2 The data on the front page and all the charts in the report represent market data as of 08/18/16, while the reports text is as of 08/19/2016 Overview Based in Sugar Land, Texas, CVR Partners, LP (UAN) makes and markets nitrogen fertilizers including ammonia and urea ammonium nitrate ( UAN ) in the U.S. Its products are used mainly by growers to improve yield and quality of their crops. The company makes these products at its Coffeyville, Kansas, facility. The principal markets for the company s fertilizer products are Kansas, Missouri, Nebraska, Iowa, Illinois, Colorado and Texas. CVR Partners markets ammonia products to industrial and agricultural customers and UAN products to agricultural customers. The company uses petroleum coke (produced during crude oil refining process) as primary raw material feedstock in its nitrogen fertilizer production process compared to natural gas used by most of its competitors. CVR Partners facility includes a 1,0 ton-per-day ammonia plant, a 3,000 ton-per-day UAN plant and a gasifier complex having a capacity of 89 million standard cubic feet per day of hydrogen. The company now upgrades substantially all of the ammonia it makes to higher margin UAN fertilizer following the completion of UAN expansion in CVR Partners generated net sales of $289.2 million in The company produced 928,0 tons of UAN and 385,400 tons of ammonia in Roughly 96% of produced ammonia tons and most of the purchased ammonia were upgraded into UAN last year. CVR Partners, in Apr 2016, closed its buyout of nitrogen fertilizer maker Rentech Nitrogen Partners, L.P in a cash and stock deal worth $533 million. Zacks Equity Research: UAN Page 2 of 7

3 Reasons To Sell: CVR Partners is exposed to pricing pressure stemming from lower nitrogen fertilizer prices. It is seeing lower prices for UAN as witnessed by a roughly 26% decline in second-quarter Urea prices have been under pressure due to higher supply from Chinese producers. Ammonia prices also slipped around 24% in the last reported quarter. CVR Partners faces intense pricing competition from other producers (both U.S. and foreign) of nitrogen fertilizer. Its competitors including Agrium, Potash Corp. and CF Industries have significant command in the marketplace. Lower cost of natural gas, which is used as primary feedstock by most of the competitors, unfavorably impacts CVR Partners competitive position vis-à-vis other nitrogen fertilizer makers. A decline in nitrogen fertilizer prices in the wake of low natural gas costs would significantly impact the company s results. CVR Partners is exposed to headwinds from lower nitrogen fertilizer prices. Its operations are also subject to the risks of production outages. The company also faces intense price competition. The company s operations are also subject to the risks of production outages due to plant shutdowns. It had a major three-week plant turnaround during the third quarter of 2015 involving roughly $7 million of expense. This downtime impacted CVR Partners full-year 2015 distribution. Moreover, a major turnaround at the East Dubuque plant involving around $6.6 million expenses affected the company s distribution in second-quarter The full impact of the turnaround on its distribution for the quarter has been estimated at around $10 million. A prolonged plant shutdown, if any, could have an adverse impact on the company s results of operations and the financial condition moving ahead. Risks CVR Partners remains committed to ramp up its UAN production capacity. The company is upgrading substantially all of the ammonia it makes to higher margin UAN. It also benefits from transportation cost advantage given the close proximity of its production facility to the U.S. Corn Belt. The buyout of Rentech Nitrogen Partners offers a compelling opportunity as the integration of two pure-play, complementary nitrogen fertilizer makers creates an entity with larger scale, enhanced production capacity and increased operating reach. The combined company is now the second-biggest producer of UAN in North America. CVR Partners anticipates the deal to be double-digit accretive to distributable cash per unit before synergies. The merged entity is expected to realize synergies of at least $12 million, partly through savings in selling, general & administrative costs, and logistics and procurement improvements. The addition of Rentech Nitrogen's East Dubuque fertilizer plant in Illinois enhances CVR Partners scale and diversify its geography and raw material feedstock. CVR Partners production of ammonia is anticipated to rise by around 75 tons per day in second-half 2016 on the back of incremental hydrogen supply. Rentech Nitrogen s ammonia production is estimated to increase by 50 tons per day in second-half In addition to diversified assets, feedstocks and markets, the merged entity will also gain from the world's most attractive grain market in the Mid Corn Belt. According to U.S. Department of Agriculture (USDA) estimates, roughly 94 million acres of corn have been planted this year compared with 88 million acres in Farmers in the U.S. have planted more corn and soybeans in 2016 than what was expected. This significant increase in acreage is expected to support strong nitrogen fertilizer demand. Last Earnings Report CVR Partners Q2 Earnings Trail Estimates, Sales Beat CVR Partners posted a loss of $0.15 per share in the second quarter of 2016, versus earnings of $0.37 reported a year ago. Adjusted earnings came in at $0.01 per share, missing the Zacks Consensus Estimate of $0.21. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $29.1 million in the reported quarter, down from $36.1 million in the second quarter of Quarter Ending 06/2016 Report Date Jul 28, 2016 Sales Surprise 9.79% EPS Surprise % Quarterly EPS 0.01 Annual EPS (TTM) 0.45 CVR Partners posted revenues of $119.8 million in the quarter, up around 48.3% year over year. Revenues also breezed past the Zacks Consensus Estimate of $109 million. Operational Statistics CVR Partners produced 171,500 tons of ammonia during the second quarter of 2016 and purchased an additional 5,000 tons, of which 45,0 net tons were available for sale while the rest was upgraded to 296,500 tons of urea ammonium nitrate (UAN). In the reported quarter, CVR Partners completed the acquisition of Rentech Nitrogen Partners. The acquisition primarily consisted of the East Dubuque nitrogen production facility. A full turnaround of the East Dubuque facility was completed in the quarter as part of which a new ammonia converter was installed. The facility is now allowed to produce over 1,000 tons per day, an increase of more than 75 tons per day from the previous level. On-stream factors during the reported quarter were 98.0% for gasification, 96.6% for the ammonia synthesis loop and 93.7% for the UAN conversion facility at the Coffeyville facility. At the East Dubuque facility on-stream factors during the quarter were 68.6% for the Zacks Equity Research: UAN Page 3 of 7

4 ammonia synthesis loop and 69.1% for the UAN conversion. Financials CVR Partners ended the quarter with cash and cash equivalents of $76.3 million, up around 13.9% year over year. Operating cash flow was $5.5 million for the reported quarter, down roughly 82%. Capital spending for the quarter was $10.1 million. The company completed a $645 million bond offering in the quarter, which included refinancing of an interim debt facility for the acquisition of Rentech Nitrogen Partners. Outlook CVR Partners expects a capital expenditure in the range of $3-$5 million in the third quarter of 2016 for the final payment of the new ammonia converter at the East Dubuque facility. Full-year capital expenditure for the maintenance of the two facilities (9 months of the East Dubuque facility post acquisition) is projected at $19 million. CVR Partners expects the industry to evolve over the next 1-3 years through consolidation. Management expects prices to fall due to seasonality. Additionally, it expects consumers to purchase more domestically produced tons to be able to take delivery in stages. The company is also optimistic about its market position due to a larger geographical presence post acquisition. Recent News CVR Partners Prices Senior Notes Offering Worth $645 Million - Jun 3, 2016 CVR Partners and its fully-owned unit, CVR Nitrogen Finance Corporation, have declared the pricing of their offering of senior secured notes worth $645 million in total principal amount to eligible purchasers. The notes will mature on Jun 15, 2023 and pay annual interest at a rate of 9.25%. They were priced at % of par. CVR Partners plans to utilize the net proceeds of the notes offering to repay in full and terminate its outstanding credit facility, finance its earlier announced tender offer and pay related fees and expenses. CVR Partners Wraps Up Rentech Nitrogen Acquisition - Apr 1, 2016 CVR Partners has completed the buyout of nitrogen fertilizer maker Rentech Nitrogen Partners, L.P. in a cash and stock deal. The merger deal was announced in Aug Under the deal terms, each eligible issued and outstanding Rentech Nitrogen common unit immediately prior to the deal closure was automatically converted into the right to get 1.04 units of CVR Partners and $2.57 of cash. The addition of Rentech Nitrogen's East Dubuque fertilizer plant in Illinois enhances CVR Partners scale and diversifies its geography and raw material feedstock. The plant produced 340,0 tons of ammonia and 279,000 tons of UAN in Zacks Equity Research: UAN Page 4 of 7

5 Industry Analysis Zacks Industry Rank: 251 / 265 (Bottom 5%) Top Peers AGRIUM INC (AGU) CF INDUS HLDGS (CF) INTREPID POTASH (IPI) MOSAIC CO/THE (MOS) POTASH SASK (POT) SCOTTS MIRCL-GR (SMG) SOC QUIMICA MIN (SQM) YARA INTL-ADR (YARIY) Industry Comparison Fertilizers Position in Industry: 4 of 9 Industry Peers UAN Market Cap M # of Analysts 2 Dividend Yield 9.99% Growth Score Hist. EPS Growth (3-5 yrs) % Proj. EPS Growth (F1/F0) % Curr. Cash Flow Growth -4.% Hist. Cash Flow Growth (3-5 yrs) 13.97% Current Ratio 2.81 Debt/Capital 48.19% Net Margin 2.01% Return on Equity 16.18% Sales/Assets 0.23 Proj. Sales Growth (F1/F0) 21.68% Value Score Cash/Price EV/EBITDA PEG Ratio 1.46 Price/Book (P/B) 1.17 Price/Cash Flow (P/CF) 9.54 P/E (F1) Price/Sales (P/S) 2.20 Earnings Yield 8.32% Debt/Equity 0.93 Cash Flow ($/share) 1.36 Momentum Score Daily Price Chg 1.46% 1 Week Price Chg 4.35% 4 Week Price Chg % 12 Week Price Chg % 52 Week Price Chg % 20 Day Average Volume 296,317 (F1) EPS Est Wkly Chg 0.00% (F1) EPS Est Mthly Chg % (F1) EPS Est Qtrly Chg % (Q1) EPS Est Mthly Chg % X Industry S&P M B % 1.74% % 7.79% % 7.07% 1.29% 4.40% -0.02% 8.09% % 41.96% 8.57% 9.47% 11.85% 15.86% % 2.69% % 5.20% % 0.18% 1.03% 0.00% -3.50% 0.04% -1.52% 4.36% % 3.97% 5, % 0.07% -9.86% -0.03% % 0.91% % -0.58% AGU CF IPI B 5.43 B M % 1.67% 0.00% NA % 5.66% % % % % % % % 4.80% 5.70% % 6.06% 7.85% -2.45% % 43.% 27.17% 6.18% 4.55% % 14.89% 12.62% -5.95% % -4.89% % 0.00% 0.47% 3.05% -0.75% 3.02% 1.61% -2.37% % -6.25% 1.% % -0.74% % % % 532,098 6,392, , % 0.00% -4.93% -6.44% % -9.86% % % % % % % Zacks Equity Research: UAN Page 5 of 7

6 Zacks Rank Education The Zacks Rank is calculated from four primary inputs: Agreement, Magnitude, Upside and Surprise. Agreement This is the extent which brokerage analysts are revising their earnings estimates in the same direction. The greater the percentage of estimates being revised higher, the better the score for this component. For example, if there were 10 estimate revisions over the last days, with 8 of those revisions up, and the other 2 down, then the agreement factor would be 80% positive. If, however, 8 were to the downside with only 2 of them up, then the agreement factor would be 80% negative. The higher the percentage of agreement the better. Magnitude This is a measure based on the size of the recent change in the current consensus estimates. The Zacks Rank looks at the magnitude of these changes over the last days. In the chart to the right, the display shows the consensus estimate from -days ago, -days ago, 7-days ago, and the most current estimate The difference between the current estimate and the estimate from -days ago is displayed as a percentage. A larger positive percentage increase will score better on this component. Upside This is the difference between the most accurate estimate, as calculated by Zacks, and the consensus estimate. For example, a stock with a consensus estimate of $1.00, and a most accurate estimate of $1.05 will have an upside factor of 5%. This is not an indication of how much a stock will go up or down. Instead, it's a measure of the difference between these two estimates. This is particularly useful near earnings season as a positive upside percentage can be used to help predict a future surprise. Surprise The Zacks Rank also factors in the last few quarters of earnings surprises. Companies that have positively surprised in the recent past have a tendency of positively surprising again in the future (or missing if they recently missed). A stock with a recent track record of positive surprises will score better on this factor than a stock with a history of negative surprises. These stocks will have a greater likelihood of positively surprising again. Zacks Style Score Education The Zacks Style Score is as a complementary indicator to the Zacks Rank, giving investors a way to focus on the best Zacks Rank stocks that best fit their own stock picking preferences. Academic research has proven that stocks with the best Growth, Value, and Momentum characteristics outperform the market. The Zacks Style Scores rate stocks on each of these individual styles and assigns a rating of A, B, C, D and F. An A, is better than a B; a B is better than a C; and so on. Value Score Growth Score Momentum Score VGM Score As an investor, you want to buy stocks with the highest probability of success. That means buying stocks with a Zacks Rank #1 or #2, Strong Buy or Buy, which also has a Style Score of an A or a B. Zacks Equity Research: UAN Page 6 of 7

7 Disclosures The analysts contributing to this report do not hold any shares of this stock. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts' personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. Zacks Equity Research: UAN Page 7 of 7