Should you buy, sell, or hold Terra Nitrogen (TNH) at today’s 52 week high?

Terra Nitrogen (TNH) hit a new 52 week high today of $157.00 per share.  This fertilizer company has skyrocketed since April 2011.  I'll bet you're wondering if you should you buy, sell, or hold TNH shares at $157.00?  You should hold them if you own them because TNH is only trading at 15.7 times the company's five year average adjusted earnings of $9.97 per share.  Sit back and collect the dividend until the shares climb to 20 times average earnings which would be $199.40 per share.
Terra Nitrogen is not a high dividend stock right now due to the huge stock price advance since July 2010.  The company is paying a $1.36 quarterly dividend per share.  There was a special dividend last quarter that is confusing all the online dividend yield calculations.  The dividend yield is closer to 3.4% when the special dividend is removed.  That is still a good dividend compared to the pathetic S&P 500 average of around 2%.
If you don't own Terra Nitrogen, then consider buying it when it drops back to the $90 – $119 range.  The stock would be trading at 12 times its five year average earnings when the price is at $119.  At $90 TNH would sport a dividend yield of 6% if it keeps its $1.36 quarterly dividend in place.  The dividend is fairly safe.  In the 1st quarter of 2011 TNH earned $3.60 per share and paid out $1.36 in dividends.  That is a low 37.7% dividend payout ratio.  Let's look at this even more cautiously: assume for a moment that the company only earns its five year average in earnings – $9.97 per share.  The dividend payout ratio at the end of 2011 would only climb to 54.5% ($5.44 annual dividend / $9.97 average annual earnings).
Terra Nitrogen has a strong balance sheet.  It has $252.1 million in current assets (most of that is cash and cash equivalents) and only $55.5 million in current liabilities.


March 31, December 31,
2011 2010
(in millions, except for units)
Current assets:
Cash and cash equivalents $ 221.7 $ 124.8
Demand deposits with affiliate 10.7 6.1
Accounts receivable, net 1.2

Inventories, net 16.7 27.6
Prepaid expenses and other current assets 1.8 1.2
Total current assets 252.1 193.1
Property, plant and equipment, net 82.6 83.2
Plant turnaround, net 11.9 13.4
Other assets 6.8 7.0
Total assets $ 353.4 $ 296.7
Current liabilities:
Accounts payable and accrued liabilities $ 22.0 $ 24.3
Customer advances 33.1 61.2
Other current liabilities 0.4 0.8
Total current liabilities 55.5 86.3
Noncurrent liabilities 0.7 0.4
Partners' capital:
Limited partners' interests, 18,501,576 Common Units
authorized, issued and outstanding 250.0 208.5
Limited partners' interests, 184,072 Class B Common Units
authorized, issued and outstanding 1.4 0.6
General partners' interest 45.8 0.9
Total partners' capital 297.2 210.0
Total liabilities and partners' capital $ 353.4 $ 296.7
To read the other articles I've written on Terra Nitrogen click here:
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Published in: on July 21, 2011 at 12:44 am  Leave a Comment  

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