Is CVR Energy, Inc. (CVI) Overvalued?

In 2012, legendary investor Carl Icahn bought more than an 80% stake in CVR Energy, Inc. (NYSE:CVI) because he wanted to take the company private. Due to lack of potential buyers, however, he cancelled his plans. Since then, there’s been no looking back for CVR Energy, Inc. (NYSE:CVI), as shares have doubled in the last eight months.

CVR Energy, Inc. (NYSE: CVI)

In January, CVR Energy, Inc. (NYSE:CVI) announced special-shareholder dividends worth approximately $480 million. About that time, and in an attempt to increase corporate profits, Icahn split the refining arm, CVR Refining LP (NYSE:CVRR), from CVR Energy, Inc. (NYSE:CVI).

The refining business generated $600 million in its IPO, and the stock has climbed from $25 to $34 in just two months. Moreover, CVR Refining LP (NYSE:CVRR), a master limited partnership, is offering a 16.2% dividend yield to its investors and, based on current estimates, it’s expected to pay $4.72 per unit in the full year. Master Limited Partnerships offer more by the way of dividends because they avoid corporate taxes.

Shares of CVR Energy, Inc. (NYSE:CVI) have looked attractive. In fact, its stock has been growing steadily since this time four years ago when it was trading at less than $6 per share.

But has the stock reached its saturation point? To get the answer, we must assess CVR Energy’s value with respect to its industry and close competitors. Let’s look at some important metrics comparing CVR Energy, Inc. (NYSE:CVI) with two of its closest competitors: Northern Tier Energy LP (NYSE:NTI) and Delek US Holdings, Inc. (NYSE:DK).

Northern Tier Energy LP (NYSE:NTI), formerly Northern Tier Energy, Inc., is an independent downstream energy company with refining, retail, and pipeline operations

Company Return on Assets (TTM) Price/Book (MRQ): Trailing P/E (TTM)
CVR Energy 15.9% 3.6 13.3
Northern Tier Energy 38.8% 5.4 8.6
Delek US Holdings 11% 2.8 11.2

Source: Yahoo! Finance. MRQ = Most Recent Quarter. TTM = trailing 12 months.

Return on assets

It indicates how effectively the assets of a company are utilized. In other words, how valuable are the assets of a company. As the table suggests, with 38.8% ROA, Northern Tier clearly outperforms CVR Energy.

In fact, on the back of the strategic advantage of its assets, Northern Tier doubled its operating income to $144.2 million from $75.5 million on a y-o-y basis. But CVR Energy’s ROA isn’t as bad as it seems. CVR is performing well above the average ROA in the oil-and-natural gas industry, which is 7.8%.

Price/book

The ratio indicates the price of the shares per unit book value of the tangible assets. CVR Energy’s P/B is much higher than that of the oil-and-gas refining and marketing industry, which is 1.9. Therefore, CVR Energy is overvalued compared to its industry.