- After the retreat in its stock price, it is now an excellent opportunity for a long-term investment in CVR Energy at a cheap price.
- CVI’s stock is ranked first among all Russell 1000 stocks yielding more than 5%, according to Portfolio123’s "ValueSheet" powerful ranking system.
- CVR Energy has a strong cash position of $962.1 million, and it is paying a very generous dividend yield of 6.29%.
CVR Energy, Inc.'s (NYSE:CVI) stock fell sharply on June 24, along with the refinery sector, as regulators have decided to allow some exports of ultra-light oil. However, in my opinion, the new regulation will not affect CVR Energy, and investors can take advantage of the last drop in its stock price to buy a high-yielding good stock at a cheap price.
CVR Energy, Inc., through its subsidiaries, engages in petroleum refining and nitrogen fertilizer manufacturing activities in the United States.
The table below presents the valuation metrics of CVI; the data were taken from Yahoo Finance and finviz.com.
CVR Energy's valuation metrics are very good; the forward P/E is very low at 9.15, and the Enterprise Value/EBITDA ratio is extremely low at 4.69.
According to James P. O'Shaughnessy, the Enterprise Value/EBITDA ratio is the best-performing single value factor. In his impressive book "What Works on Wall Street", Mr. O'Shaughnessy demonstrates that 46 years back-testing, from 1963 to 2009, have shown that companies with the lowest EV/EBITDA ratio have given the best return. Mr. O'Shaughnessy explains that EV/EBITDA is a better way to assess value - that is, how cheap or expensive it is - than looking at the P/E ratio alone. The EV/EBITDA is neutral to a company's capital structure and capital expenditures. Stocks that have very high debt levels often have low P/E ratios, but this does not necessarily mean that they are cheap in relation to other securities.
Latest Quarter Results
On May 01, CVR Energy reported its first-quarter 2014 financial results, which beat EPS expectations by $0.12 (14.60%). The company reported net income of $126.7 million, or $1.46 per diluted share, on net sales of $2,447.4 million, compared to net income of $165.0 million, or $1.90 per diluted share, on net sales of $2,352.4 million for the 2013 first quarter.
In the report, Jack Lipinski, CVR Energy's chief executive officer, said:
CVR Energy's first quarter results were driven by the solid financial and operational performance of our petroleum and nitrogen fertilizer subsidiaries. CVR Refining's Coffeyville and Wynnewood refineries posted a record quarterly combined crude throughput rate for the quarter. At CVR Partners, realized fertilizer prices and plant operations were generally in line with the company's expectations.
Next Quarter Results
CVR Energy will report its second-quarter 2014 financial results on July 28. CVI is expected to post a profit of $1.28 a share, a 10.5% decline from the company's actual earnings for the same quarter a year ago.
The forward annual dividend yield is very high at 6.29% and the payout ratio at 78.3%. CVR Energy has a strong cash position of $962.1 million, and its total debt is only $675.9 million, which means $286.2 million net cash. Therefore, I believe that its high dividend payment is sustainable.
A comparison of key fundamental data between CVR Energy and its main competitors is shown in the table below.
CVR Energy has the lowest P/E ratio and the lowest EV/EBITDA ratio among the stocks in the group, and its dividend yield is the highest.
CVI's Return on Capital parameters have been much better than its industry median, its sector median and the S&P 500 median, and its competitors as shown in the table below.
According to Portfolio123's "ValueSheet" powerful ranking system, CVI's stock is ranked first among all Russell 1000 stocks yielding more than 5%. The "ValueSheet" ranking system is quite complex, and it is taking into account many factors like valuation ratios, growth rates, profitability ratios, financial strength, asset utilization, technical rank, industry rank, and industry leadership, as shown in Portfolio123's chart below.
Back-testing over fifteen years has proved that this ranking system is very useful.
The charts below give some technical analysis information.
The CVI stock price is 1.74% below its 20-day simple moving average, 0.01% above its 50-day simple moving average and 16.70% above its 200-day simple moving average. That indicates a long-term uptrend.
Chart: TradeStation Group, Inc.
The weekly MACD histogram, a particularly valuable indicator by technicians, is at 0.24 and descending, which is a bearish signal (a rising MACD histogram and crossing the zero line from below is considered an extremely bullish signal). The RSI oscillator is at 56.72 which do not indicate oversold or overbought conditions.
Only three analysts are covering the company, two analysts rate it as a hold, and one analyst rates it as an underperform.
Although CVR Energy's stock is doing well this year, it has underperformed the market in the last years. Since the beginning of the year, CVI's stock has gained 9.8%, while the S&P 500 index has increased 6.2%, and the Nasdaq Composite Index has risen 5.1%. However, since the start of 2013, CVI's stock has gained only 29.6%, while the S&P 500 index has increased 37.7%, and the Nasdaq Composite Index has risen 45.4%.
CVR Energy's stock fell sharply on June 24, along with the refinery sector, as regulators have decided to allow some exports of ultra-light oil. The stock lost 5.7% from $50.65 on June 23, to $47.76 on June 25. However, according to Citigroup, the recent U.S. ruling allowing limited exports of lightly processed oil may permit the equivalent of only 3.6% of U.S. crude to be sold on international markets this year. Exports would give U.S. producers access to niche markets in Asia and Latin America, while having only a small impact on the price domestic refiners pay for crude, according to Steve Sawyer, an analyst at FGE, an energy consultancy. In my opinion, the new regulation will not affect CVR Energy, and investors can take advantage of the last drop in its stock price to buy a good stock at a cheap price.
CVR Energy has compelling valuation metrics; its Enterprise Value/EBITDA ratio is extremely low at 4.69. Furthermore, CVI's stock is ranked first among all Russell 1000 stocks yielding more than 5%, according to Portfolio123's "ValueSheet" powerful ranking system. CVR Energy has a strong cash position of $962.1 million, and it is paying a very generous dividend yield of 6.29%, which is, in my opinion, sustainable. All these factors lead me to the conclusion that CVI stock is a long-term smart investment right now.