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Can CVR Partners (UAN) Spring a Surprise in Q2 Earnings?

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CVR Partners, LP (UAN - Free Report) is set to release second-quarter 2017 results, ahead of the bell on Jul 27.
 
Last quarter, the company delivered a negative earnings surprise of 350%. It posted a loss of 9 cents per share against a profit of 25 cents reported a year ago. The reported loss was higher than the Zacks Consensus Estimate of a loss of 2 cents for the quarter.
 
On a year-over-year basis, the company’s net sales improved 16.7% to $85.3 million in the first quarter. Revenues surpassed the Zacks Consensus Estimate of $79 million.
 
CVR Partners missed earnings estimates in all the trailing four quarters with an average negative surprise of 253%.
 
Let’s take a look at how things are shaping up for this announcement.
 
CVR Partners, LP Price and EPS Surprise
 
CVR Partners anticipates a strong spring corn planting season in the U.S. This in turn, is likely to lead to higher demand for nitrogen fertilizer for the 2017 spring application season. Moreover, farmers are likely to plant 90 million acres of corn this year.
 
CVR Partners remains committed to ramp up its UAN production capacity. It also benefits from transportation cost advantage, given the close proximity of its production facility to the U.S. Corn Belt.
 
CVR Partners should also gain from its strategic acquisitions and capacity expansion actions. With the buyout of Rentech Nitrogen Partners, the company has been able to create an entity with larger scale, enhance production capacity and increase operating reach. The combined company is now the second-biggest producer of UAN in North America. The merged entity is expected to realize synergies of at least $12 million, partly through savings in selling, general & administrative costs, and logistics and procurement improvements.
 
However, the company remains exposed to headwinds from weak nitrogen fertilizer prices. Abundant nitrogen supply driven by new production capacity is expected weigh on global prices this year. 
 
CVR Partners’ shares have declined around 18.3% over the last three months, underperforming the industry’s 3.6% gain.
 
 
Earnings Whispers
 
Our proven model does not conclusively show that CVR Partners is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below: 
 
Zacks ESP: Earnings ESP for CVR Partners is currently pegged at 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at a loss of 4 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank: CVR Partners carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
 
Concurrently, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
 
Stocks to Consider
 
Here are some companies in the basic materials space you can consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
 
Westlake Chemical Corporation (WLK - Free Report) has an Earnings ESP of +5.04% and a Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank stocks here.
 
The Chemours Company (CC - Free Report) has an Earnings ESP of +4.44% and a Zacks Rank #1.
 
Endeavour Silver Corp. (EXK - Free Report) has an Earnings ESP of +100% and a Zacks Rank #3.
 
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