Finding a company with high growth and a high dividend is a tough task in today's market. A refiner who recently went public contains both of these traits and has pulled back from its highs. Now is the time to pile in and hold on for the ride higher.
CVR Refining (CVRR) is a petroleum refiner in the United States that went public in January of this year. It earns money by purchasing crude oil and selling the refined products, primarily gasoline and diesel. It has a strategic location in the southern United States, which gives it access to inexpensive local and Canadian crude.
4th quarter breakdown
CVR's fourth quarter results started it off on the right foot with investors. Here is a breakdown of what the company reported:
- Revenues rose 85.4% to $1.82 billion
- Adjusted EBITDA grew an incredible 343% to $196.20 million
- Operating income rose to $120.4 million from a loss of $11.8 million
2012 annual report
The full year of 2012 was just as impressive as the fourth quarter alone. Investors took notice and sent the stock higher. Here are the key statistics to note:
- Net income rose 23.9% to $595.3 million
- Revenues grew 74.3% to $8.28 billion
- Adjusted EBITDA increased 103.7% to $1.18 billion
- Operating income increased 117.6% to $993.9 million
Management stated that the impressive growth in 2012 came from "strong crack spreads, access to price-advantaged crudes, and high operating throughputs." The rise in free cash flow will allow the company to expand operations and possibly give it more room for negotiation in the purchase of crude. Ultimately, CVR Refining wants to increase its national market share.
When CVR Refining filed for its initial public offering, management expected dividends to total $4.72 in 2013. From the IPO price, the yield would have been 18.8%. However, the growth and strength of financial has allowed management to announce an increase. The company now expects to pay out between $5.50 and $6.50 this year. From the initial price, the revised payouts made the stock yield around 22% to 26%.
"We expect 2013 to be a rewarding year for the company and its unit-holders," said management in the annual report. I like where management's head is at and they clearly have a dedication to returning value to shareholders.
Projections going forward
For fiscal 2013, analysts estimate earnings per share to increase 28% to $6.31. After what the company reported in the fourth quarter, these estimates are much too low and we should see raised guidance in the near future. It may take a report or two for analysts to understand what this refiner is capable of.
The background story
CVR Refining is the product of a split from CVR Energy (CVI). This was thought up by Carl Icahn and his Icahn Enterprises (IEP). CVR Energy is a holding company that is involved in petroleum refining and nitrogen fertilizer manufacturing. They own two limited partnerships: CVR Partners, which owns and operates the nitrogen fertilizer manufacturing business, and CVR Refining, which owns the refining business, as mentioned before. As a whole, CVR Energy reported record earnings for 2012 and is only getting stronger.
Carl Icahn was the first to notice the value of CVR Energy's individual units. Carl built a majority stake in the company and was able to make the moves with the help of its board of directors. CVR Energy split CVR Refining off in January of 2013, offered a special dividend, and increased its annual dividend. Having Icahn involved was the best thing to ever happen to the company and its stock has risen over 100% since.
Knowing the background of where CVR Refining came from can foreshadow where it is going. The company will have the dedication to shareholders instilled in it and Carl Icahn will always have a watchful eye.
The Environmental Protection Agency, teamed with clean-air advocates, has proposed standards that would require refiners to reduce the amount of sulfur in gasoline. The reduction would be to 10 parts per million from 30 parts per million. The new standards would cost refiners about $10 billion in up-front costs and another $2.4 billion annually. Valero (VLO) announced the change would cost it about $300-$400 million, but CVR Refining said its current equipment would be able to handle the change, but that the end product would cost more to the consumer. I do not see any changes happening that will increase the cost of gasoline because it would cause an uproar.
Concluding the argument
The growth potential and high yield make CVR Refining a great play in this high-flying market. Having Carl Icahn involved means the company will continue to have a dedication to returning value to shareholders. The proposed EPA regulations have knocked the stock down, but this is nothing more than a buying opportunity.