Bear of the Day: Rentech Nitrogen (RNF) - Bear of the Day
A key input in the process of making nitrogen is natural gas. As the cost of that input rises, the bottom line can be impacted. Since April, the price of natural gas moved from $4.40 to $3.30 in August and has recently moved back towards $4.00. The recent increase in price could be influencing analyst estimates.
Rentech Nitrogen Partners makes nitrogen fertilizer products. Its products include ammonia, urea ammonium nitrate, liquid and granular urea, nitric acid, carbon dioxide, ammonium sulfate, sulfuric acid, and ammonium thiosulfate. The company is based in Los Angeles, California. Rentech Nitrogen Partners is a subsidiary of Rentech Nitrogen Holdings
Over the last year, RNF has missed the Zacks Consensus Estimate in all four quarters. Most of the misses have been large, with the most recent quarter coming in three cents below expectations. The miss translated into a negative 13% earnings surprise, and that was the best quarter of the year. The other surprises were -33%, -29% and -17%.
Earnings Estimates Adjusted
In May the Zacks Consensus Estimate for 2013 was calling for $2.46. The number has since dropped to $1.85 and now stands at $1.33.
2014 isn't seeing any increases either. The Zacks Consensus Estimate has slipped from $3.33 in May to $2.86 in August and now stands at $2.30.
The decrease in price has made the valuation look pretty attractive for RNF. The 15x forward PE compares favorably to the 16.6x industry average. The problem is that as the stock price continues to fall and that has a way of making all the valuation metrics look better and better. With estimates continuing to fall, it is likely that this trend will continue.
The price and consensus chart for RNF shows how the earnings movements have driven the stock lower. As estimates continue to fall, the stock has followed. Investors would be wise to wait for the estimates to move higher before starting a position in RNF.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service , a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
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