CVR Refining, LP (NYSE:CVRR) had a strong first quarter and paid a solid distribution of $0.98. (CVRR's First Quarter financial statement from their website). At that time I recommended to investors you pass on buying CVRR due to the mass buying driving the price up. I estimated the unit price would climb between $26-$27, where it actually topped out at $28.23 on May 7, 2014, the day prior to the ex-dividend date. Now I recommend the buy for the post ex-dividend date selling that has decreased the unit price to a profitable buy-in.
"CVR Refining, LP is an independent downstream energy limited partnership that owns refining and related logistics assets in the Midcontinent United States. CVR Refining's subsidiaries operate a complex full coking medium-sour crude oil refinery with a rated capacity of 115,000 barrels per calendar day (bpcd) in Coffeyville, Kan., and a medium complexity crude oil refinery with a rated capacity of 70,000 bpcd in Wynnewood, Okla. CVR Refining's subsidiaries also operate supporting logistics assets including approximately 350 miles of pipelines, more than 150 crude oil transports, a network of strategically located crude oil gathering tank farms, and more than six million barrels of owned and leased crude oil storage capacity."
First Quarter's Financial Statement Sets the Standard for 2014
On May 1, 2014, CVRR announced first quarter 2014 net income of $265.4 million on net sales of $2,375.3 million, compared to net income of $275.4 million on net sales of $2,274.0 million for the 2013 first quarter. Adjusted EBITDA, a non-GAAP financial measure, for the 2014 first quarter was $194.1 million compared to adjusted EBITDA of $309.9 million for the 2013 first quarter. These were strong numbers that exceeded most analyst expectations.
Two months into the second quarter and CVRR's refineries and operations are running near full operation and sales continue to be strong. CVRR's best advantage is the refineries location and networks for receiving and marketing their products. It would be nearly impossible for others to enter the market and challenge CVRR due to pricing with low shipping and distribution costs in their market area. This said, CVRR has a limited capability to expand without a large output of capital to expand networks into other distribution areas. CVRR has a very strong hold on their niche market and creates a profitable position for their investors.
The one downside to a smaller company like CVRR is if one or both refineries are down, for any number of reasons, the loss of sales will immediately hurt the bottom line and the distributions the company pays. CVRR had one refinery damaged in 2013 and one very unprofitable quarter. The following quarter the company's operations rebounded, but the company finished paying the repair costs during the last quarter of 2013.
Stocks that offer a double-digit quarterly distribution have a stock price roller coaster ride from one ex-dividend date to the next. Just after the ex-dividend date, the stock price drops. This is due to some investors buying in to get the distribution, and then getting out quickly after the ex-dividend date, which helps fuel the drop of the stock price. Within about 30 days the stock bottoms out and begins to build in price and peaks just prior to the ex-dividend date, with the cycle occurring again every 90 days. CVRR is no different than most companies in this cycle, however, CVRR has the opportunity to grow its unit price for the long term, and pay double-digit distributions along the way.
First quarter's distribution was $0.98, an annualized distribution of 15% based on the unit price of $26.00. We anticipate this to be near the low unit price for this quarter's cycle as it bottomed on May 21 at $25.90. The unit price has steadied at this price for the week and we now anticipate a steady climb over the next two months toward the announcement of the second quarter's financial statement and ex-dividend date. The unit price is up almost 15% for the year-to-date as of now, and we expect the unit price to climb during the rest of 2014. The opportunity to buy units during this dip helps build your portfolio.
CVRR has 147.6 million common units outstanding, and the average daily volume traded is shy of 400,000. Any buying and selling of shares can directly impact the unit price easier than stocks with near a million or more shares traded each day. Most investors with CVRR take a buy and hold position with the peaks of trading around the ex-dividend date that drives the price up and down.
Now is the time to buy CVRR at the lowest price for this quarter. We anticipate the unit price to climb through the rest of the quarter to the financial report when the company announces its next distribution. We also recommend you reinvest the distributions when possible, as the distributions are paid after the price drops and allows for a great purchase point for more units.
Disclosure: I am long CVRR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.