Shares of CVR Energy and CVR Refining Gain Big on EPA Appointee

Image source: Getty Images

What happened

Shares of CVR Energy (NYSE: CVI) and its refining subsidiary CVR Refining (NYSE: CVRR) are both up double digits Thursday as of 1 p.m. EST. The largest reason for Thursday's jump has to do with the announcement that Oklahoma Attorney GeneralScott Pruitt will head the U.S. Environmental Protection Agency under the President-elect Donald Trump administration.

So what

The nomination of Pruitt was already likely going to be a boost for the oil and gas industry in general. Pruitt's work as Attorney General in Oklahoma is well documented with legal suits against the U.S. EPA for numerous reasons. There is a small wrinkle as to why CVR Energy and CVR Refining stand out among the crowd.

CVI Price data by YCharts

The largest shareholder of CVR Energy is activist investor Carl Icahn, who, through Icahn Enterprises, owns 82% of shares outstanding. It also just so happens that Icahn was very influential in the nomination of the next U.S. EPA administrator as he actually interviewed several of the candidates and gave his feedback to President-elect Trump.

As you can imagine, Wall Street is going to act very favorably when the person with a controlling stake in your company gets to play a large role in naming the person that will regulate your business.

Now what

Wall Street is probably going to use this news to make a quick buck, and it's entirely possible that the thing CVR has been asking for -- reform of the U.S. EPA's renewable fuels standard -- could take place now that a person who has Icahn's blessing is in charge of the program.

For longer term investors, though, there are definitely other things to consider. One is that refining margins have been quite low lately, and rising oil prices are likely going to keep refining margins low for a while. So CVR Refining's -- and, by default, CVR Energy's -- results will likely suffer.

There is also the fact that CVR Energy's dividend is paid via cash distributions from CVR Refining and CVR Energy's other subsidiary, CVR Partners (NYSE: UAN). The current cash distributions paid to the parent company aren't enough to support its currentdividend, so it's very possible it will need to cut that dividend soon.

Regardless, if Pruitt is the head of the EPA or not, these things will have a much larger influence on the company's stock in the future.

10 stocks we like better than CVR Energy When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and CVR Energy wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of Nov. 7, 2016

Tyler Crowe has no position in any stocks mentioned.You can follow himat Fool.comor on Twitter@TylerCroweFool.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.