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Strategies & Market Trends : Value Investing
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From: Elroy10/3/2022 2:12:24 PM
1 Recommendation

Recommended By
Area51

   of 78682
 
UAN remains an attractive BUY still, in my view.

The price of the fertilizers UAN makes and sells remains quite high, and we’re exiting the seasonally weak Q3. Historically fertilizer prices rise between now and next March. Rising fertilizer prices may pull UAN’s unit price higher, but the unit price seems to lately dance more to the macro beat than to UAN’s company specific fundamentals.

The big appeal of the UAN story is you’ll probably get $40.00 in 2023 distributions if fertilizer prices just stay where they are now. That’s about a 33% yield. Crazy, and the fundamental story may be improving. Usually a 33% yielding stock/bond is about to go bankrupt…..

It also implies UAN is trading at about 3x forecast 2023 cash flows, and that if nothing changes, the partnership will earn their market cap in three years, I guess that’s two ways of saying the same thing!

I’d expect UAN to be more appropriately valued at $200-$250 per unit, but I don’t know what will make the unit price increase to that level. The story I’m telling is not a secret - it’s more like the consensus view.

The only reason one wouldn’t want to own UAN now is if you believe fertilizer prices are likely to decline by about 50% within the next two years. Without new supply coming on line, that seems unlikely, but what do I know?
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