This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Stay Away From CVR Refining

Stocks in this article: CVRR CVII UAN NTI ALDW

NEW YORK (TheStreet) -- An attractive yield isn't everything. Here's why you should stay away from CVR Refining (CVRR - Get Report).

CVR Refining is a limited partnership and the refining arm of CVR Energy (CVII), which, in turn, is mainly a holding company that is also engaged in fertilizer manufacturing operations through CVR Partners (UAN). CVRR offers attractive yield of 7.80% and it is trading just 6.6 times its trailing earnings. But this $3.4 billion market-cap company is not without risks.

CVR Refining shares, trading at $23, are down 28% for the past 52 weeks. This price is even lower than its IPO price of $25 in January 2013. Its shares are trading just 0.4 times its trailing sales as opposed to the industry's average of more than 1.2 times, as per data compiled by Thomson Reuters.

It doesn't help the volatile price of ethanol credits has created a challenging business environment. CVR Refining's earnings before interest, taxes, depreciation and amortization dropped from $779 million in 2012 to $748 million in 2013 while adjusted earnings slumped 40% to $712 million. CVR Refining's net income fell 0.8% from 2012 to $590 million.

Oil production isn't the problem. The company owns a crude oil refinery at Coffeyville, Kansas, that can handle 115,000 barrels of oil per day and a smaller facility at Wynnewood, Okla., with daily capacity of 70,000 barrels. Besides these, CVR Refining also owns 350 miles of pipelines and more than six million barrels of oil storage capacity.

In 2013, the company's daily throughout and refining production rose 9.7% and 10.2%, respectively, from 2012. However, due to weakness in fuel prices, higher volumes did not result in a commensurate increase in net sales, which were up just 5% to $8.7 billion. A 3.7% increase in average cost of crude oil consumed and a nine-fold increase in prices of ethanol credits to $181 million further exacerbated the situation.

Refiners are required to either blend renewable fuels into gasoline and diesel, or purchase the ethanol credits, also called Renewable Identification Numbers (RINs).

The extremely volatile RIN prices pose a big challenge for the company's future. CVR Refining's management has acknowledged that the RIN prices are still going up. In the current year, the refiner has forecast that it could spend anything between $75 million and $150 million as RIN expense. Although this would be a decline from the current year, the company only paid $21 million in 2012 and $19 million in 2011.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,678.70 +6.10 0.03%
S&P 500 2,057.09 +5.27 0.26%
NASDAQ 4,771.7630 +13.8840 0.29%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs