Monday, Mizuho (NYSE:MFG) issued a downgrade for Par Pacific Holdings (NYSE:NYSE:PARR), moving its stock rating from Outperform to Neutral. The firm also reduced its price target to $22 from the previous $26. According to InvestingPro data, PARR shares have declined over 54% year-to-date, with analyst targets now ranging between $19 and $27.
The stock currently trades at an attractive P/E ratio of 3.0x, suggesting potential undervaluation despite recent challenges. The revision comes amid expectations of weaker crack spreads due to new supply factors and planned refinery capacity shutdowns, which are anticipated to affect the market in the short to medium term.
The analyst noted several global developments likely to impact refined product balances, including the ramp-up of Nigeria's Dangote refinery, the initiation of Mexico's Dos Bocas refinery's first train in the first quarter of 2025, and the increase in operations at China's Yulong refinery in the first half of 2025.
These factors are expected to contribute to an oversupply in the market. Want deeper insights into Par Pacific's market position? InvestingPro subscribers get access to exclusive analysis and 12 additional ProTips that could help navigate these market challenges.
The report specifically highlighted the potential negative impact on Par Pacific's profitability in Hawaii, which represents approximately 43% of the company's total capacity. The new capacity in China poses a challenge to the company's margins in the Asia-Pacific region.
Despite the recognition of Par Pacific's diversified portfolio and its niche market positions in PADDs 4 and 5, the anticipated global crack spread weakness, especially in West Coast markets, is predicted to overshadow the company's long-term strengths. InvestingPro data shows the company maintains a solid financial health score and a current ratio of 1.69, indicating sufficient liquidity to weather near-term challenges.
Mizuho also pointed to the anticipated lower profitability of the Montana refinery in the first half of 2025 compared to the second half. This is attributed to maintenance work on the Fluid Catalytic Cracking ( FCC (BME:FCC)) and alkylation units, coupled with the relatively narrow heavy crude spreads, which have been affected by delays in OPEC+ supply.
These factors are expected to influence the company's financial performance in the near future. Despite these challenges, Par Pacific has demonstrated strong profitability with a return on equity of 27% and EBITDA of $392 million in the last twelve months.
In other recent news, Par Pacific Holdings, Inc. has seen several important developments. The company has expanded its term loan credit agreement by $100 million, bringing the total principal balance to $650 million. This move is part of Par Pacific's strategic financial management, aimed at strengthening its financial position.
Additionally, the company has announced the upcoming resignation of board member Mr. Anthony Chase, effective November 15, 2024. This departure will create a vacancy on both the Board of Directors and its Nominating and Corporate Governance Committee.
In terms of financial performance, Par Pacific reported mixed results for the third quarter of 2024. The company recorded an adjusted EBITDA of $51 million and an adjusted net loss of $0.10 per share. Despite a slight decline in same-store fuel volumes, the company achieved a record refining throughput of 198,000 barrels per day and a 3.8% increase in merchandise sales.
Looking to the future, Par Pacific plans to cut its fixed operating expenses by $30 million to $40 million in 2025 to improve market resilience. Additionally, the company is investing in a Sustainable Aviation Fuel (SAF) project in Hawaii as part of its strategic growth initiatives. These are recent developments that reflect the company's focus on operational efficiency, cost reduction, and strategic growth.
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