On Aug 29, 2015, Zacks Investment Research upgraded fertilizer maker CVR Partners, LP UAN to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
CVR Partners recently agreed to buy nitrogen fertilizer maker – Rentech Nitrogen Partners, L.P. RNF – in a cash and stock deal worth $533 million. The transaction is expected to close by year-end 2015 and not later than May 31, 2016.
Per the terms of the deal, the shareholders of Rentech Nitrogen will receive 1.04 units of CVR Partners and $2.57 of cash for each outstanding Rentech Nitrogen common unit held. The offer represents a 33% premium to Rentech Nitrogen’s closing price on Aug 7. The merger deal has an enterprise value of around $839 million.
The merger offers a compelling opportunity as the integration of two pure-play, complementary nitrogen fertilizer makers would create an entity with larger scale, enhanced production capacity and increased operating reach. Following the deal closure, the combined company will be the second-biggest producer of urea ammonium nitrate ("UAN") in North America.
CVR Partners anticipates the deal to be double-digit accretive to distributable cash per unit before synergies. The merged entity is expected to realize synergies of at least $12 million, partly through savings in selling, general & administrative costs, and logistics and procurement improvements.
The addition of Rentech Nitrogen's East Dubuque fertilizer plant in Illinois will enhance CVR Partners’ scale and diversify its geography and raw material feedstock. CVR Partners’ production of ammonia is anticipated to rise by around 75 tons per day in second-half 2016 on the back of incremental hydrogen supply from a plant that is currently under construction. Rentech Nitrogen’s ammonia production is estimated to increase by 50 tons per day in second-half 2016.
Apart from this acquisition, the fertilizer company delivered a solid performance in second-quarter 2015, with its profits soaring roughly 58% from the year-ago quarter. CVR Partners also recorded sustained progress at its capacity expansion projects at Donaldsonville, LA, and Port Neal, IA, scheduled for production in 2016. These projects are anticipated to increase the company’s nitrogen nutrient capacity by more than 25%.
Further, the company expects a strong third quarter owing to higher order bookings for ammonia and UAN, which support expectations of 2016 fertilizer demand being in line with 2015 levels. CVR Partners expects corn plantations of 89.5 million acres in 2016 compared to 88.9 million acres in 2015 as farmers are expected to book profits from a higher grain price that resulted from wet weather and reduced corn yield. These factors are anticipated to support strong North American nitrogen fertilizer demand, including direct application of ammonia during fall.
Stocks to Consider
Other favorably ranked stocks in the basic materials sector include Innospec Inc. IOSP and Air Products & Chemicals Inc. APD. While Innospec sports a Zacks Rank #1, Air Products carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment