Bear Of The Day: Rentech Nitrogen

Dec. 2.13 | About: Rentech Nitrogen (RNF)

By Brian Bolan

Rentech Nitrogen (NYSE:RNF) was profiled back on April 2, and since that time the stock dropped nearly 42%. It is again the Bear of the Day as a Zacks Rank #5 (Strong Sell).

Natural Gas

A key input in the process of making nitrogen is natural gas. As the cost of that input rises, the bottom line can be impacted. Since April, the price of natural gas moved from $4.40 to $3.30 in August and has recently moved back towards $4.00. The recent increase in price could be influencing analyst estimates.

Company Description

Rentech Nitrogen Partners makes nitrogen fertilizer products. Its products include ammonia, urea ammonium nitrate, liquid and granular urea, nitric acid, carbon dioxide, ammonium sulfate, sulfuric acid, and ammonium thiosulfate. The company is based in Los Angeles, California. Rentech Nitrogen Partners is a subsidiary of Rentech Nitrogen Holdings

Earnings History

Over the last year, RNF has missed the Zacks Consensus Estimate in all four quarters. Most of the misses have been large, with the most recent quarter coming in three cents below expectations. The miss translated into a negative 13% earnings surprise, and that was the best quarter of the year. The other surprises were -33%, -29% and -17%.

Earnings Estimates Adjusted

In May the Zacks Consensus Estimate for 2013 was calling for $2.46. The number has since dropped to $1.85 and now stands at $1.33.

2014 isn't seeing any increases either. The Zacks Consensus Estimate has slipped from $3.33 in May to $2.86 in August and now stands at $2.30.

Valuation

The decrease in price has made the valuation look pretty attractive for RNF. The 15x forward PE compares favorably to the 16.6x industry average. The problem is that as the stock price continues to fall and that has a way of making all the valuation metrics look better and better. With estimates continuing to fall, it is likely that this trend will continue. Investors would be wise to wait for the estimates to move higher before starting a position in RNF.

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