CVR Partners (UAN) Down To Strong Sell: Time To Offload It?

On Aug 27, Zacks Investment Research downgraded CVR Partners, LP (NYSE:UAN) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

CVR Partners swung to a loss on a reported basis in second-quarter 2016, hit by a major plant turnaround and charges related to its purchase of Rentech Nitrogen Partners. Adjusted earnings missed the Zacks Consensus Estimate.

The company has witnessed downward estimate revisions over the last 30 days. The Zacks Consensus Estimate for 2016 has decreased 40% to 60 cents per share over this period.

CVR Partners is exposed to pricing pressure stemming from lower nitrogen fertilizer prices. It is seeing lower prices for urea ammonium nitrate (“UAN”) as witnessed by a roughly 26% decline in the second quarter. Urea prices have been under pressure due to high levels of supply from Chinese producers. Ammonia prices also slipped around 24% in the last reported quarter.

CVR Partners also faces intense pricing competition from other producers (both U.S. and foreign) of nitrogen fertilizer. Lower cost of natural gas, which is used as primary feedstock by most of the competitors, unfavorably impacts CVR Partners’ competitive position vis-à-vis other nitrogen fertilizer makers.

The company’s operations are also subject to the risks of production outages due to plant shutdowns. It had a major three-week plant turnaround during the third quarter of 2015 involving roughly $7 million of expense. This downtime impacted CVR Partners’ full-year 2015 distribution.

Moreover, a major turnaround at the East Dubuque plant involving around $6.6 million expenses affected the company’s distribution in second-quarter 2016. The full impact of the turnaround on its distribution for the quarter has been estimated at around $10 million. A prolonged plant shutdown, if any, could have an adverse impact on the company’s results from operations and financial condition, moving ahead.

Stocks to Consider

Better-ranked stocks in the basic materials sector include Innospec Inc. (NASDAQ:IOSP) , Innophos Holdings Inc (NASDAQ:IPHS) and The Chemours Company (NYSE:CC) , all sporting a Zacks Rank #1 (Strong Buy).