CVR Energy, Inc. (CVI): Looking through the noise, 3Q2007 results better than expected - Goldman Sachs - 12/05/07
News
CVR reported its first ever quarter as a public company.
Analysis
Bottom-line results were messy as expected owing to the flood that occurred in the quarter and related charges and tax items. Our initial take on “clean” EPS for 3Q2007 is a loss of $0.24 versus a $0.06 profit we had expected. The negative variance for us came entirely from non-operating items including interest expense and a meaningfully higher tax rate, which were not fully offset by better-than-expected operating results. Most importantly, operating performance and realized margins at the refinery were better than we had forecast, with the company realizing a refining margin almost $1/bbl higher than we had forecast. CVR also ran a meaningfully higher proportion of Canadian heavy crude oil than we expected—a very good sign as to the future earnings power of the refinery.
Implications
Given our view that the messiness of various items in 3Q are nonrecurring, we think the favorable operating and gross margin performance paint a very positive picture for the future earnings/cash flow power of CVR in the context of our secularly bullish refining view. When we initiated coverage on CVR earlier this week, we had expected 3Q2007 to be noisy, and that turned out to be correct. However, relative to our initiation report, we have come away feeling better that the expected improvement in earnings and cash flow from its reconfigured refinery will be visible to the Street sooner than we had thought. We have a Neutral rating on CVR Energy, but consider it, along with Holly, to be among our favorite Neutral-rated stocks. Our target price for CVR Energy remains unchanged. |
