Is This Terra Nitrogen's Traditional Pre-Earnings Rise?

The recent run-up in the price of Terra Nitrogen Co. LP (TNH) has made me take a look at the recent quarterly price cycles of this stock. The results are very interesting. I have TNH in this site’s Income Portfolio because this fertilizer MLP has been raising its dividend at a tremendous rate over the last 3 years, riding the agricultural boom. The volatility of the stock price, however, is something to behold. With the stock gains of the last few days I think I see a pattern.

I know many stocks have a tendency to run up in price approaching an earnings release, but TNH takes it to an extreme and appears to be very regular at the same time. I have looked at the last 3 quarterly releases and the current one due out on April 24. I will try to put this in an understandable format without resorting to a graph:

Earnings reported on July 26, 2007: Share price peaks at about $140 on 07/03/2007, 23 days earlier.
August 16, 2007: Stock price bottoms at $66, 21 days after earnings, down 53%.
Earnings reported on October 24, 2007: Shares trade above $130 from Oct. 1 to Oct. 12, before starting down. Peak is 12-24 days before earnings and 97% above the quarter’s low.
November 12, 2007: Stock bottoms at $88, 19 days after earnings, down 32% from the pre-earnings peak.

Earnings reported on February 7, 2008: Stock price peaks at $168, 22 days earlier on January 14 and 91% up from the low in November.

March 20, 2008: Stock bottoms at about $102, 42 days after earnings and down 39% from the previous peak.

April 24, 2008: This week is the first quarter earnings release and currently the stock is trading at around $155, up 52% from the previous low.

The cycle seems to be delayed 15-20 days this time by the overall market drop in late March. It will be interesting to see what the stock prices do next week and after that. Of course, all of this requires TNH to continue paying the strong dividend. If the dividend is cut, I think the stock will get hammered. It does not look like it will happen this quarter.

Terra Nitrogen is an MLP, majority owned by Terra Industries (TRA). TNH generates revenues from a single fertilizer plant, so the interested investor may want to take a look at TRA minus the dividends. For myself, I am going to take a close look where TNH’s stock price is about 30 days from now. - Tim Plaehn, Seeking Alpha