Zacks Investment Research downgraded CVR Partners, LP UAN to a Zacks Rank #5 (Strong Sell) on Dec 24.
Why the Downgrade?
CVR Partners slipped to a loss in third-quarter 2015, hit by a major plant turnaround, outages and costs related to its planned purchase of Rentech Nitrogen Partners RNF. Revenues and adjusted loss missed the respective Zacks Consensus Estimate for the quarter.
While CVR Partners remains focused on ramping up its production capacity and is progressing well with its capacity expansion projects, it is exposed to pricing pressure stemming from lower nitrogen fertilizer prices. The company is witnessing lower prices for urea ammonium nitrate (UAN), as reflected by a roughly 11% decline in the third quarter. Urea prices have been under pressure due to higher supply from Chinese producers.
CVR Partners is also facing intense pricing competition from other fertilizer producers. Lower cost of natural gas, which is used as primary feedstock by most of its competitors, unfavorably impacts CVR Partners’ competitive position vis-a-vis other nitrogen fertilizer makers.
Moreover, the company’s operations are subject to the risks of production outages due to plant shutdowns. It witnessed a major three-week plant turnaround during the third quarter, which set it back by expenses amounting to roughly $7 million. This downtime is expected to impact CVR Partners’ full-year 2015 distribution. Additionally, the company has a major plant turnaround for Coffeyville, scheduled for the second half of 2017. A prolonged plant shutdown, if any, could have an adverse impact on its results of operations and financial condition.
Stocks to Consider
Some better-ranked companies in the basic materials space are Celanese Corporation CE and Innospec Inc. IOSP. Both the stocks carry a Zacks Rank #2 (Buy).
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