Weekly Stock Report CVRR

mr-wallstreet (38)in #investing • 6 years ago (edited)

Weekly Stock Report CVRR

01/02/2019
Company name: CVR Refining LP (CVRR)
Headquarters in Sugar Land, TX
Current stock Price: $10.95
Dividend Yield: 23.01%
Z- Score: 4.3 safe zone and strong
F-Score: 8 safe and strong

I found this company by looking for companies with good cash flow and high dividends. CVR Refining LP (CVRR) trailing twelve month Return on Invested Capital is 27.53% and the weighted cost of this capital is only 12.45%. This spread illustrates that CVRR generates higher returns on investment than it costs the company to raise the capital needed for that investment. So I decided to start digging.

First wanted to know if any of the big guys are buying CVRR and found that Hotchkis and Wiley has added to their position in the third quarter of 2018. Hotchkis and Wiley focuses on value “Our investment approach is based on the conviction that a security’s market price does not always accurately reflect the company’s value.” I didn’t see any recent insiders buying or selling.

CVRR is a subsidiary of CVR Energy Inc. which is owned by Icahn Enterprises Holdings L.P. If that sounds familiar it is because legendary businessman, investor, and philanthropist Carl Icahn found and is a controlling shareholder of the company.

CVRR Refining is a growth-oriented, independent downstream energy company with crude oil refining, gathering and refined petroleum product marketing operations located in the Midwest. Focused on increasing profitability through growth opportunities while remaining committed to unit-holder value and safe and environmentally conscientious operations.

Obviously there is a lot of competition in the oil and gas refining space as well as price fluctuation on crude oil prices. Some of the biggest competitors in the service industry are:

Marathon Petroleum Corporation (MPC) a market cap of $40 billion and cash flow of $255 million. Currently 3.1% dividend yield.
Phillips 66 (PSX) a market cap of $39 billion and cash flow of $221 million also Warren Buffet has a stake in the company. Currently 3.7% dividend yield.
Energy Corporation (VLO) a market cap of $31 billion and cash flow of $284 million. Currently 4.2% dividend yield.

Then we have CVRR way down the list at a market cap of 1.5 billion and cash flow of $5 million. Currently 34% dividend yield. Since I’m looking for yield I will continue checking out the company.

If I am going to invest in a company I need to see growth. Lets take a look at some recent growth numbers from the past five, three and latest years.

Book Value (BVPS): 22%, 7, 7
Earning (EPS): -31%, -37%, 480
Operation Cash (OCPS) -28%, -37, -34
Sales: -7%, -14, 30

Based on these growth averages it is hard for me to give an average growth rate to use in the future. I do not like negative growth rates or the inconsistent growth rates. However, the last year does not seem to bad and the whole industry over the last couple of years has been inconsistent due to the fluctuating prices of crude oil. I will continue with no growth or use inflation as growth rate.

MANAGEMENT:
CEO, President and Director of the general partners David L Lamp has more than 37 years of technical, commercial and operational experience in the refining and chemical industries. Previously COO and EVP of HollyFrontier Corporation. (HFC).

Two key statements I found on the 10Q.
’The cost to acquire crude oil and other feedstocks and the price for which refined products are ultimately sold depend on factors beyond our control, including the supply of and demand for crude oil, as well as gasoline and other refined products which, in turn, depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and the extent of government regulation. Because we apply first-in, first-out (“FIFO”) accounting to value our inventory, crude oil price movements may impact net income in the short term because of changes in the value of our unhedged on-hand inventory”
‘Our refineries generally require a facility turnaround every four to five years. The length of the turnaround is contingent upon the scope of work to be completed. The next turnaround scheduled for the Wynnewood refinery is being performed as a two phase turnaround. The first phase of its current
turnaround was completed in November 2017 at a total cost of approximately $67 million. The second phase of the Wynnewood turnaround is expected to occur in the first half of 2019. Turnaround expenses associated with the second phase of the Wynnewood turnaround are estimated to be approximately $25 million. In addition to the two phase turnaround, we accelerated certain planned turnaround activities in the first quarter of 2017 on the hydrocracker unit for a catalyst change-out. We incurred approximately $13 million of major turnaround expenses for the hydrocracker. The next turnaround scheduled for the Coffeyville refinery is expected to be performed in the first half of 2020.”

Management’s Return on Equity has been solid but shrinking. 5yrs 19, 3yrs 10%, 1yr 7. The Return on Invested Capital 5yr 13%, 3yr 7%, and 5yr 5% been decreasing. Also the debt has been shrinking but it would take over 6 years of earnings to pay off the debt. I think management could do better.

The dividend yield for September 2018 was $.56 and the free cash flow per share for the trailing twelve month ending in September of 2018 was $1.99. EPS for 2018 was $2.82 and forward EPS is lower at $2.78.

FWD Dividend $2.53 / FWD EPS of $2.78 = EPS payout ration of .91
FWD Dividend $2.53 / TTM FCF of $1.99 = FCF payout ration of 1.27

Any payout ration of above .75 is too high for me. For now I would stay clear of CVRR and if it is still tempting I would take some risk off the table and possibly look into its parent company CVR Energy (CVI) with better all around numbers, a 9% yield, and EPS payout of .66.

This is just one of many ways to think of before investing in a company especially for yield.