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Analyst Actions: Credit Suisse Initiates Cover on Rentech With Neutral Rating, $20 TP; Stock Hits Yr Lows

A Yield Play on Ag Fundamentals; INITIATING Coverage with a NEUTRAL Rating and Target Price of $20.

The stocks is down more than 3% today and has hit a new year low $17.64.

Initiating Coverage with a Neutral Rating and a $20 TP: "We initiate coverage of RNF with a Neutral rating and a $20 target price. We view the stock as an attractive vehicle to play the positive long-term nitrogen fertilizer fundamentals owing to its variable rate distribution, which will enable investors to participate directly in underlying profitability. However, we believe that the risk/reward around near-term nitrogen fertilizer pricing appears balanced and shares are fairly valued at the current price."

Investment Case: RNF is a single-facility, natural gas based, nitrogen fertilizer producer located in the heart of the U.S. Corn Belt. RNF has sustainable competitive advantages over its global peers owing to (1) its location, which provides it with direct access to the region of the United States with the highest density of corn plantings; and (2) its input costs, which are lower than average owing to access to low-cost natural gas located in North America. RNF's variable distribution rate policy provides investors with direct exposure to nitrogen fertilizer fundamentals without the agency costs, which its c-corp peers have to manage. RNF's primary risk is commodity prices (i.e., the spread between fertilizer prices and natural gas costs, the latter of which may have peaked and the former of which may have troughed). However, the outlook for nitrogen fertilizer fundamentals and profitability is still positive, and RNF is an attractive way to participate in the cycle, in our view."

Potential Catalysts: (1) Finalizing plans for a proposed ammonia capacity expansion, and (2) rebound in nitrogen fertilizer pricing.

Valuation: RNF's unique variable rate distribution does not fit well into our MLP valuation methodology. Instead, we use a target yield of 7% based on our mid-cycle distribution of $1.42/unit .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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