In 2012, legendary investor Carl Icahn bought more than an 80% stake in CVR Energy, Inc. (NYSE:CVI) because he wanted to take the company private. Due to lack of potential buyers, however, he cancelled his plans. Since then, there’s been no looking back for CVR Energy, Inc. (NYSE:CVI), as shares have doubled in the last eight months.
In January, CVR Energy, Inc. (NYSE:CVI) announced special-shareholder dividends worth approximately $480 million. About that time, and in an attempt to increase corporate profits, Icahn split the refining arm, CVR Refining LP (NYSE:CVRR), from CVR Energy, Inc. (NYSE:CVI).
The refining business generated $600 million in its IPO, and the stock has climbed from $25 to $34 in just two months. Moreover, CVR Refining LP (NYSE:CVRR), a master limited partnership, is offering a 16.2% dividend yield to its investors and, based on current estimates, it’s expected to pay $4.72 per unit in the full year. Master Limited Partnerships offer more by the way of dividends because they avoid corporate taxes.
Shares of CVR Energy, Inc. (NYSE:CVI) have looked attractive. In fact, its stock has been growing steadily since this time four years ago when it was trading at less than $6 per share.
But has the stock reached its saturation point? To get the answer, we must assess CVR Energy’s value with respect to its industry and close competitors. Let’s look at some important metrics comparing CVR Energy, Inc. (NYSE:CVI) with two of its closest competitors: Northern Tier Energy LP (NYSE:NTI) and Delek US Holdings, Inc. (NYSE:DK).
Northern Tier Energy LP (NYSE:NTI), formerly Northern Tier Energy, Inc., is an independent downstream energy company with refining, retail, and pipeline operations
| Company | Return on Assets (TTM) | Price/Book (MRQ): | Trailing P/E (TTM) |
|---|---|---|---|
| CVR Energy | 15.9% | 3.6 | 13.3 |
| Northern Tier Energy | 38.8% | 5.4 | 8.6 |
| Delek US Holdings | 11% | 2.8 | 11.2 |
Source: Yahoo! Finance. MRQ = Most Recent Quarter. TTM = trailing 12 months.
Return on assets
It indicates how effectively the assets of a company are utilized. In other words, how valuable are the assets of a company. As the table suggests, with 38.8% ROA, Northern Tier clearly outperforms CVR Energy.
In fact, on the back of the strategic advantage of its assets, Northern Tier doubled its operating income to $144.2 million from $75.5 million on a y-o-y basis. But CVR Energy’s ROA isn’t as bad as it seems. CVR is performing well above the average ROA in the oil-and-natural gas industry, which is 7.8%.
Price/book
The ratio indicates the price of the shares per unit book value of the tangible assets. CVR Energy’s P/B is much higher than that of the oil-and-gas refining and marketing industry, which is 1.9. Therefore, CVR Energy is overvalued compared to its industry.
When compared to a few of its competitors, however, results are mixed. CVR Energy’s P/B, which is about 3.6, is less than that of Northern Tier but higher than Delek US Holdings, Inc. (NYSE:DK). So Delek is trading cheap when compared to the other two.
Trailing P/E
Price/Earnings ratio is market value divided by earnings per share and it measures whether a stock is undervalued or overvalued compared to its industry and competitors. The average industry P/E ratio is 12.8, while CVR Energy’s is 13.3.
The small difference between the two ratios shows that CVR Energy is valued well compared to its industry. CVR Energy, however, is pricier than Northern Tier and Delek, which have P/E ratios of 8.6 and 11.2, respectively. It’s worth mentioning that for the fifth time, Delek has beat its quarterly earnings estimates, which indicates that its earnings are increasing continuously despite a lower P/E.
Foolish bottom line
CVR Energy is a little expensive when compared to its competitors and the industry as a whole. It can, however, be considered a safe investment because current market and company-specific factors are favorable.
The industry is growing because of attractive fuel prices in the market. For its part, CVR Energy has been benefiting from the aggressive strategies implemented by Icahn, such as the spin-off of CVR Refining. So from an investment perspective, I am still bullish about CVR.
The article Is CVR Energy Overvalued? originally appeared on Fool.com and is written by Nikita Dugar.
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