Why is Carl Icahn loading up on this fertilizer stock since election day?

Billionaire investor Carl Icahn has significantly increased his stake in CVR Partners, a US-based fertilizer producer, purchasing shares almost every trading day since the November 5 presidential election.

According to filings with the Securities and Exchange Commission, Icahn has acquired approximately 142,000 shares in 15 consecutive trading sessions, bringing his total holdings to about 3.9 million.

He holds a 37% stake in the company.

This aggressive buying spree signals Icahn’s confidence in the outlook for natural gas costs under President-elect Donald Trump’s second term.

CVR Partners trades under the ticker symbol UAN and produces ammonia-based fertilizers at plants in Kansas and Illinois.

Natural gas is a critical input for the company, particularly at its Illinois facility, making its profitability highly sensitive to shifts in gas prices.

Trump’s energy agenda could lower costs

President-elect Trump’s "energy dominance" agenda, which includes expanding oil and gas drilling, is expected to increase the supply of natural gas and potentially lower its cost.

Reduced input costs could benefit ammonia-based fertilizer producers like CVR Partners, driving Icahn’s bullish stance.

Shares of CVR Partners have risen about 7% since the election, outpacing the broader S&P 500, which has gained 4% over the same period.

However, unlike larger energy-related companies, CVR Partners does not receive coverage from Wall Street analysts, likely due to its relatively modest market capitalization of $750 million.

Other factors favoring the stock

CVR Partners' valuation metrics reveal a compelling story.

The company boasts a P/E ratio of 14.17 and a price-to-book ratio of 2.58, suggesting it is reasonably priced, particularly when factoring in its robust free cash flow yield.

The current P/S ratio of 1.44 is also below industry norms, suggesting potential undervaluation and presenting an investment opportunity that Icahn may have identified.

Further, the lack of analyst coverage for CVR Partners contrasts with its dividend yield of about 9.4%, an attractive feature for income-focused investors.

While revenue has declined by 29.88% over the past year, CVR Partners has remained profitable, underscoring its resilience.

The company's operating income margin of 15.69%.

However, CVR Partners' high debt-to-equity ratio of 1.92 highlights challenges in managing its debt, pointing to potential financial pressures for the company.

Even so, Icahn’s substantial and consistent purchases suggest he sees a significant upside in the stock, betting on a favorable natural gas environment under Trump’s policies.

GE Vernova shares also climb

Other energy-linked companies are experiencing optimism in the wake of the election.

GE Vernova, a manufacturer of natural gas-fired power generation turbines, has seen its stock rise approximately 5% since November 5.

Wall Street analysts have raised their price targets for GE Vernova shares, with RBC analyst Christopher Dendrinos boosting his target to $376 from $285.

Dendrinos attributes the optimism to tight supply-and-demand dynamics in the turbine market, which allow GE Vernova to raise prices.

With 74% of analysts rating the stock a "Buy," compared to an S&P 500 average of 55%, the company appears well-positioned to benefit from Trump’s energy policies.