what my app showed for next year making me wonder if this quarter was a fluke.
I think your app data is wrong.
And for UAN the quarter wouldn't be a fluke. Fertilizer prices have risen dramatically since Dec 2020, and they are currently near peaks. UAN sells forward, so they report results based on prices ~6 months ago (when they sold the current quarter's production). So.....UAN's Q4 will be a bit better than Q3, and then Q1 2022 will be fantastic because there was a BIG jump in fertilizer prices in late September 2021, and UAN will report sales which reflect that September price increase in Q1 2022. So.....the quarter won't be a fluke, what might be is this current high price situation is a SEASONAL fluke (the planting seasons peaks in May), and then prices may decline for the 2022/23 planting season. But things won't change on a three month dime.
CF is saying this is not a seasonal fluke, and we likely have many seasons ahead with high fertilizer prices. Of course that's just a forecast, so who knows what will happen.
Back to the app data - for UAN we don't care so much about EPS. We care about free cash flow. EPS includes non-cash depreciation, which is very meaningful since UAN is mainly just a huge manufacturing plant, and depreciation reduces EPS quite a lot. UAN distributes all their free cash after paying for interest, operating expenses, COGS and various one time charges which don't fit into a regular bucket. Since cash flows are not affected by depreciation, cash flow per share can be much higher than accounting EPS, and cash flow is what UAN pays out in distributions. Cash, baby, cash.
The reason NOT to own UAN is because one believes that fertilizer prices are likely to fall back toward the low levels of the past 5-6 years. If the price of UAN fertilizer again falls below about ~$160/ton (not sure of the exact break even point at the moment, maybe about $150?), perhaps UAN the MLP won't have any free cash flow to distribute. Today UAN fertilizer is selling for $590/ton.
cmegroup.com
So, if you think it's heading for $160/ton and likely to stay down there, or decline below that level, then sure, don't buy any UAN MLP units. Otherwise, buy them. |
