CVI - CVR Energy: Refineries Fertilizers Renewables And 6% Dividend What's Not To Like?

2023-06-15 04:35:26 ET

Summary

• CVR Energy has had a spectacular TTM (Trailing Twelve Months) financial performance, but its price has dropped considerably.
• CVI has a 6.4% dividend and is looking to increase it further.
• The company's price performance has trailed other oil companies and the market in general.

Overview:

CVR Energy, Inc. ( CVI ) is an energy company that refines petroleum, produces bio-diesel and makes fertilizer through its 37% ownership of CVR Partners LP ( UAN ). According to its website here is a description of its business.

CVI Energy is a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries, with an increasing focus on the production of renewable biofuels, the energy transition, and lower carbon emissions Source: CVI Energy

Over the last year, CVI has underperformed relative to the S&P500 ( SPY ).

On a market cap basis, CVI is ranked 298th in the world, somewhat smaller than some of the more prominent oil companies in the world.

The much smaller size has made CVI fly under the radar somewhat, but it is making progress in all areas.

In this article, we will look at CVR Energy's prospects for the next year to try and determine the price direction out to 2024 as compared to last year.

CVI Stock Key Metrics

Let's look at CVR Energy's financial metrics, comparing the latest TTM (Trailing Twelve Months) with the previous year. In CVR Energy's case, the TTM coincides with the end of Q1 2021 and Q1 2022 years ending March 31.

We can make a reasonable comparison of today's value versus last year's value. Once we have made that comparison, we will make an attempt to see how the coming year may play out.

One quick look at the financial metrics table above comparing 2021 to 2022 shows enormous improvement in results for CVR Energy over that time period.

I have highlighted in yellow the items I consider the most positive compared to the other items. The orange items are those that are questionable from an investment standpoint. Note that CVR has no orange items, meaning I can't find any negatives at all in their comparable financial metrics.

CVR Energy's price (Line 1) has decreased by 23% over the last 12 months, despite an increase in Revenue (Line 2) of 32%. Gross Margin (Line 4) is also up significantly (67%) compared to Revenue. This would imply operational efficiencies likely improved over that 1-year time period.

However, despite the outstanding year, the PE Ratio (line 11) is much lower at about 5x compared to 22x a year ago.

And EBITDA (line 13) doubled and the debt-to-EBITDA ratio (Line 14) dropped by 44%.

In addition, FCF (Line 15) surged 75% in 2022 over 2021 lowering the Price to FCF (Line 16) from 10x to 4x.

And finally, the dividend was raised from .40 to 1.80, a staggering increase of 350%. And management is going to use future FCF to support the dividend.

We will continue to focus on maximizing free cash flow, which underpins our peer-leading dividend yield. Source: CVR Earnings Call

All in all, CVI's financial metrics were overwhelmingly good, but in spite of that, the share price went down.

This could imply that CVI is in the bargain bin.

How Did CVI Energy's Share Price Compare to the Price Of Oil?

A good way to visualize CVR Energy's price performance is to compare it to oil prices over the same period of time.

The chart below shows that despite a steady, consistent drop in oil prices over the last year, CVI outperformed oil, but both were down more than 20%.

So from an investment standpoint, oil prices have historically not been the dominant determinant of CVR Energy's price. That is due to refinery margins not being tied directly to oil prices.

What Do Analysts Think?

Wall Street analysts, Seeking Alpha analysts, and quants are decidedly neutral on CVR Energy with everyone having a Hold rating at the moment. However, earlier in the year, both SA analysts and quants had CVI a buy.

How Does CVR Energy Compare To Other Oil-related Stocks?

A legitimate question when looking at any stock is to compare its potential with other stocks in the same market sector. If we look at CVR Energy's performance over the last year and compare it to other large market value stocks in the oil sector over the last year, (Exxon (XOM), Shell (SHEL), Chevron (CVX)) we can see CVR Energy has performed poorly compared to the other three with a total return (including dividends) at a negative 17%.

Another good comparison is with the Energy Select Sector SPDR ETF ( XLE ) which includes all the oil majors in one ETF.

It is easy to see once again that CVR Energy has not performed as well as the oil sector, in general, has performed over the last 12 months.

Is CVI Stock A Buy, Sell, or Hold?

Obviously, there are risks with a CVR Energy investment. For example, if the oil price falls to $50 a barrel, CVR Energy will still generate huge amounts of cash flow but will certainly not be able to maintain its current share price. The other big risk for CVI is regulatory. In addition, CVI's 37% ownership of CVR Partners LP puts a big chunk of its earnings at risk because of the extreme volatility of fertilizer prices.

But based upon all the information above, it is easy to see that CVR Energy has performed extremely from a financial standpoint, even though its share price has tumbled. This could imply it is a good, albeit risky, turnaround stock.

Also coming online this year is CVI's new biodiesel refinery which should add even more revenue and profits assuming oil prices don't drop too far. We continued to increase throughput rates at our Wynnewood renewable diesel unit in the quarter, processing approximately 22 million gallons of vegetable oil feedstock. Source: CVI Earnings call

I see CVR Energy, Inc as a strong buy with huge turnaround possibilities and a substantial 6% dividend.

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