We came across a bullish thesis on CVR Partners LP (UAN) on ValueInvestorsClub by kevin155. In this article we will summarize the bulls' thesis on UAN. CVR Partners shares were trading at $79.00 when this thesis was published, vs. closing price of $69.39 on Aug 29.

A rustic farm field with a tractor spreadng nitrogen-based fertilizer in the background.

CVR Partners LP (UAN) is a prominent player in the nitrogen fertilizer industry, known for its strategic positioning and cost advantages. The company primarily produces ammonia, a key ingredient in nitrogen fertilizers, which is essential for agricultural production. UAN operates in a volatile commodity market, but its facilities in Kansas and Illinois provide a significant competitive edge. These locations allow UAN to benefit from lower energy costs, positioning it on the favorable end of the global cost curve. Additionally, UAN's proximity to Midwestern farmers translates into lower distribution costs compared to competitors based on the Gulf Coast or global producers, enhancing its market appeal.

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UAN has experienced fluctuations in EBITDA due to the volatile nature of the fertilizer market. However, the company’s average EBITDA over the past seven years, factoring in both peak and trough years, has been around $183 million. Looking ahead, UAN’s future appears promising due to limited global supply additions and the widening cost advantage U.S. ammonia producers currently enjoy. This has led to the expectation that UAN’s normalized EBITDA could reasonably be estimated at $200 million, translating into a modest 6.7x multiple of normalized EBITDA based on its current enterprise value.

The company's historical challenges with expensive debt have been mitigated, as evidenced by the $550 million in 6.125% notes due in 2028, reducing interest expenses to a manageable $35 million annually. With an average annual capital expenditure of $25 million, UAN’s normalized free cash flow (FCF) is estimated at $140 million, equating to approximately $13 per share or a 17% yield on the current share price. This positions UAN as an attractive investment with a strong FCF yield, indicating potential for substantial returns.

A potential sale of UAN adds another layer of intrigue to the investment case. UAN is controlled by Icahn Enterprises (IEP) through its ownership of CVR Energy (CVI), which holds a 37% stake in UAN. IEP has recently indicated that it is considering strategic options for UAN, including the possibility of a sale. This could result in a significant revaluation of UAN’s shares, with estimates suggesting a potential share price increase of 2-2.5x within a year.