Unveiling CVR Energy (CVI)'s Value: Is It Really Priced Right? A Comprehensive Guide
On September 21, 2023, CVR Energy Inc (NYSE:CVI) recorded a daily gain of 2.43%, culminating in a 3-month gain of 26.24%. With an Earnings Per Share (EPS) (EPS) of 5.26, the question arises: is the stock modestly overvalued? This article aims to provide a comprehensive valuation analysis of CVR Energy, drawing on the company's financial performance and market metrics. Let's delve into the details.
Company Overview
CVR Energy Inc is a prominent holding company specializing in petroleum refining and nitrogen fertilizer manufacturing through its holdings in CVR Refining LP and CVR Partners, LP. The company's portfolio includes complex full coking crude oil refineries, a crude oil gathering system, pipelines, storage tanks, and marketing and supply networks. CVR Energy's refineries can process a variety of crude oil blends, from heavy sour to light sweet crude oil, supplied through its wholly-owned gathering system and pipeline. The company supplies its product directly to customers located in close geographic proximity and customers at throughput terminals. Its customers include retailers, railroads, and farm cooperatives.
As of the aforementioned date, CVR Energy's stock price was $34.56, while its GF Value, an estimation of fair value, stood at $30.98. With a market cap of $3.50 billion, the stock appears to be modestly overvalued. The company's income breakdown can be viewed
.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, GuruFocus adjustment factors, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, the stock is likely overvalued, potentially leading to poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, possibly resulting in high future returns.
CVR Energy's stock shows signs of being modestly overvalued according to GuruFocus' valuation method. The GF Value Line suggests that the stock's long-term return is likely to be lower than its business growth due to its relative overvaluation. The GF Value chart of CVR Energy can be viewed
.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To mitigate this risk, it's crucial to review a company's financial strength before purchasing shares. Metrics like the cash-to-debt ratio and interest coverage offer valuable insights into a company's financial health. CVR Energy has a cash-to-debt ratio of 0.47, ranking worse than 51.11% of 1033 companies in the Oil & Gas industry. However, with an overall financial strength of 6 out of 10, CVR Energy's financial health is fair. The company's debt and cash over the past years can be viewed
.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. High-profit-margin companies are typically safer investments than those with low profit margins. CVR Energy has been profitable 9 out of the past 10 years, with a revenue of $9.90 billion and Earnings Per Share (EPS) of $5.26 over the past twelve months. Its operating margin is 9.14%, ranking better than 50.91% of 984 companies in the Oil & Gas industry. Overall, CVR Energy's profitability is ranked 7 out of 10, indicating fair profitability.
Company growth is a crucial factor in valuation. Research by GuruFocus has found that growth is closely correlated with the long-term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of CVR Energy is 19.6%, ranking better than 69.69% of 861 companies in the Oil & Gas industry. However, its 3-year average EBITDA growth rate is 10.1%, ranking worse than 55.18% of 830 companies in the same industry. CVR Energy's growth ranks worse than 55.18% of companies in the Oil & Gas industry.
Return on Invested Capital vs Weighted Average Cost of Capital
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, CVR Energy's ROIC is 27.68, and its WACC is 10.37. The historical ROIC vs WACC comparison of CVR Energy is shown
.
Conclusion
In summary, CVR Energy's stock appears to be modestly overvalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 55.18% of 830 companies in the Oil & Gas industry. For more details about CVR Energy's stock, you can check out its 30-Year Financials here..
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This article first appeared on GuruFocus.
