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Update On CVR Refining Ahead Of Q2 Earnings – CVR Refining, LP (NYSE:CVRR)

Update On CVR Refining Ahead Of Q2 Earnings - CVR Refining, LP (NYSE:CVRR)

CVR Refining (CVRR) is likely one of the eight companies that I comply with intently on a elementary foundation. Final October, I outlined an extended thesis on CVRR when it was simply over $10/share. CVRR was been my greatest performing funding for 2017 and in addition thus far in 2018.

CVRR operates two petroleum refineries close to Cushing, OK, the situation the place the WTI crude oil worth is benchmarked. As well as, the corporate has an in depth and rising logistics enterprise, which incorporates pipeline possession and a big fleet of vans which collect crude oil in and round its refineries. A map of CVRR’s belongings is proven under together with different key strategic factors. An entire overview of the corporate that was ready in January 2018 might be accessed from this hyperlink.

Renewable Gasoline Commonplace

The RFS is the regulation which requires petroleum corporations to mix biodiesel and ethanol with their diesel and gasoline. The RFS has seen some current modifications, and the modifications have put downward worth strain on RIN costs. This impacts the biodiesel and petroleum refiners instantly and the ethanol producers not directly.

Particularly, the EPA gave small refinery exemptions to many particular person petroleum refineries, together with one owned by CVRR. The web impact has been very constructive for CVRR.

One-Yr Chart

On a technical foundation, CVRR may be seen to be consolidating for an additional run larger, or might fall again to technical help close to $18/share.

Supply: Thinkorswim

The current decline within the worth of CVRR shares is coincident with a big 40% drop in generic refining margins over the previous two months. It is potential that CVRR might head decrease as its refining friends report lower than stellar earnings.

Supply: Buying and selling View

CVI supply for CVRR shares

Lately, CVI made a suggestion to change CVRR membership models for CVI shares. Each corporations are owned and managed by Icahn Enterprises. General, I view the change supply to be affordable and good for shareholders. Beneath the brand new tax regulation, it is preferable for the belongings of CVRR to be in a company, somewhat in a partnership, construction. Examine together with your tax advisor for extra particular info, however I consider that possession of CVI shares (with sure holding interval guidelines) would allow a shareholder to obtain certified dividends (that are taxed at a decrease price than unusual revenue). Wall Road analysts have been asking for a lot of quarters whether or not the corporate would optimize its possession construction.

On the finish of the day, will probably be most effective to dissolve CVRR into CVI, and I might not be stunned to see this occur. Click on this hyperlink to entry the prospectus for the change supply.

CVI just lately introduced that will probably be elevating its (anticipated) annual distribution to $three/share. At a present share worth close to $36/share, this might symbolize an annual dividend yield of eight.three%. I am trying to purchase CVI shares within the low $30s, if it occurs. CVI additionally owns an curiosity in a fertilizer firm, however the majority of CVI’s belongings come from its majority curiosity in CVRR.

CVRR Earnings Forecast

Even with the current decline in refining margins, I’ve forecast that CVRR will beat consensus estimates for the approaching quarter. This optimistic forecast is predicated on declining RIN costs and in addition larger regional crack spreads for CVRR. CVRR has the power to course of crude oil that has a decrease general value than the WTI crude benchmark worth, and our forecast takes this into consideration.

We proceed to have an general favorable elementary outlook for CVRR. Nevertheless, the change supply might create some share worth volatility within the close to time period. It is also potential that CVRR will defer a few of this quarter’s partnership distributions in an effort to allow its father or mother CVI to distribute more money within the type of dividends.

Remaining Feedback

We applaud Icahn Enterprises’ efforts to optimize its tax construction, and we’re extra to be shareholders of CVI than unit holders of CVRR. The Icahn umbrella has managed the CVRR refining belongings very properly, most notably in build up a gathering system of vans and pipelines that allow the corporate to more and more choose the bottom regionally-priced crude oil. We will probably be monitoring the result of the CVI – CVRR change supply, and hope to have the chance to accumulate CVI within the low $30s.

Commodity Conquest

In my Commodity Conquest service, I publish a every day commodity report for gold, crude oil, pure fuel, and agriculture. I additionally do in-depth protection of eight power companies.

My verifiable buying and selling document from on all accomplished trades by way of July 5 features a win fee of 88% on my inventory protection trades, with an annualized return of over 100%.

Disclaimer

This text was written for info functions and isn’t a suggestion to purchase or promote any securities. I by no means intend to offer private monetary recommendation in any of my articles. All my articles are topic to the disclaimer discovered right here.

Disclosure: I/we’ve no positions in any shares talked about, and no plans to provoke any positions inside the subsequent 72 hours.

I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from In search of Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.

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