Summary
- CVR Energy is a petrol refining company with a significant Nitrogen Fertilizer Segment that is not well recognized.
- The Nitrogen Fertilizer segment would generate the company enough cash flow to get them through the rough times currently being experienced by the Energy Industry.
- CVR’s large stake and potential merger with Delek prepares the company for future growth as it would enable the company to both expand the customer pool and access retail sales.
- The Petroleum Industry’s many bankruptcies and well closures could permanently lower U.S. oil production, that contributes to a sharp spike in oil prices for the future.
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Current Stock Price Belies Strong Positioning
CVR Energy (CVI) by our estimation has one of the best positions in the oil industry: a smaller refiner with good capital backing and a hedge against low oil prices. Investors looking for hidden value to capitalize on in the future but need some sense of security, should consider parking capital into CVI. The coronavirus pandemic's effect on the stock market have mostly dissipated as of now, but a sector where the effects of the pandemic are still present is the Energy Industry. A quick review of the Vanguard Energy ETF confirms this, as it is still down 35% from its pre-Coronavirus high; whereas the indices like the NASDAQ have almost made a full recovery. CVR Energy at first glance appears to be just another energy company that has been devalued by the COVID-19 crisis. However, on further inspection there is much more value to be realized.
Source: Corporate Secretary.com
CVR Energy's main revenue stream is generated from refining oil into gasoline and the stock price has declined by 46.5% since February 2020. The current valuation does not reflect both the value of the company nor future growth prospects in its business segments. The present stock price does not reflect the positive market trends for the company's Nitrogen Fertilizer segment. It also ignores the strategic synergies gained from a potential future merger with Delek Holdings; which is a downstream energy company trading on the NYSE (DK). In addition, the long-run upswing potential of the gasoline energy industry makes CVR Energy an excellent stock for both its micro and macro growth potential.
