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What Does CVR Refining’s Current Valuation Indicate?

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CVR Refining’s forward distribution yield

CVR Refining (CVRR) is currently trading at a forward distribution yield of ~18%. This is higher than its five-year average distribution yield of 11.5%.

CVR Refining has fallen nearly 55% so far in 2016. The fall in stock price contributed to the rise in its yield. The forward distribution yield of a company is calculated by dividing its estimated one-year future distribution per unit by its market price per unit.

The above graph compares CVR Refining’s historical distribution yields to its two-year average.

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CVRR’s EV/EBITDA multiple

CVR Refining’s forward EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 5.9x is lower than its historical average of 7.1x. This indicates that CVR Refining might be trading at a discount compared to its average historical valuation. A fall in crack spreads generally results in lower valuations for refining MLPs. The downtime at CVRR’s Coffeyville refinery, which meant that there were no cash dividends in the past two quarters, contributed to its discounted valuation.

The enterprise value of a company is roughly the market value of its debt and equity minus its cash holdings. The EV/EBITDA ratio is neutral to capital structure, as it takes into account a company’s debt and equity. A lower ratio may indicate a possible undervaluation. CVR Refining’s trailing-12-month EV/EBITDA multiple is 4.2x.

Alon USA Partners (ALDW) and Northern Tier Energy (NTI) are trading at much lower forward yields compared to CVR Refining. In the next part, we’ll compare CVR Refining’s forward yield and EV/EBITDA multiple with those of its peers.

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