Carl Icahn’s renewed bullish stance on CVR Partners (UAN), along with increased ownership and a quarterly cash distribution nearly 80% higher than a year earlier, is pulling fresh investor attention to the nitrogen fertilizer producer.

The share price tells a mixed story, with a 17.44% 90 day share price return and a 24.95% year to date share price return. At the same time, the 1 year total shareholder return of 71.76% and 5 year total shareholder return of about 4.5x suggest strong longer term momentum off a volatile base.

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With CVR Partners trading around $126.82 and an estimated intrinsic discount of about 50%, the key question is whether the current yield and Icahn backing point to mispricing or if the market is already baking in future growth.

Price to Earnings of 11x: Is it justified?

On Simply Wall St’s metrics, CVR Partners screens as undervalued, with the unit price of $126.82 sitting about 50% below the SWS DCF fair value estimate of $253.51.

The SWS DCF model does this by estimating future cash flows that the business could generate, then discounting those back to today’s dollars. For a nitrogen fertilizer producer with cyclical earnings and meaningful debt, this type of cash flow based view can be useful because it focuses on what the assets might earn over time rather than a single year’s profit.

Alongside the DCF view, CVR Partners trades on a P/E of 11x, compared with a peer average of 59.1x and a broader US Chemicals industry average of 26.3x. That gap suggests the market is assigning a much lower price per dollar of earnings to UAN than to many similar stocks, even though UAN’s earnings are currently described as high quality and have grown 61.1% year on year with net profit margins at 18.9%.

If that difference in multiples closes, it would likely be because investors reassess the durability of those earnings, the company’s high leverage, or both. For now, the combination of a discounted DCF value, an 11x P/E, and materially higher industry and peer multiples points to a unit price that is not reflecting the same expectations embedded elsewhere in the Chemicals group.

Result: Price-to-Earnings of 11x (UNDERVALUED)

However, the heavy use of debt and CVR Partners’ reliance on nitrogen fertilizer demand could quickly challenge today’s earnings power if market conditions become less supportive.

Another View: What If The Market Is Right?

The SWS DCF model points to a fair value of $253.51 per unit, which is about 50% above the current $126.82 price. On this view UAN still screens as undervalued. The open question is whether the cash flows used in that model will prove durable enough to close that gap.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out CVR Partners for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 54 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With both concerns and reasons for optimism in play, it makes sense to look at the underlying data yourself and move quickly to form your own view, starting with 2 key rewards and 2 important warning signs.

Looking for more investment ideas?

If you stop here, you miss a wider field of opportunities that could balance your portfolio and surface stocks that fit your risk and income goals.

• Target future growth potential by scanning for quality companies priced below what their fundamentals suggest using the 54 high quality undervalued stocks.
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• Dial down risk by focusing on companies filtered for stronger balance sheets and healthier fundamentals through the solid balance sheet and fundamentals stocks screener (46 results).

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.