BofA Securities has initiated coverage of Delek US (NYSE: DK), a diversified downstream energy company, with an Underperform rating and set a price target of $15.00.
The firm's analysis points to Delek US's ownership structure and operational aspects as reasons for the rating.
Delek US holds a significant stake in its midstream subsidiary, owning 78.7% of Delek Logistics Partners LP 's (NYSE:DKL) common and general partner units.
Despite this, the analyst from BofA Securities suggests that there is no hidden value in the Delek US/Delek Logistics Partners structure that would warrant a higher stock valuation.
The company operates four refineries, with two being average and the other two ranking in the worst quintile in terms of margin. This configuration, according to BofA Securities, results in Delek US having a higher beta to refining crack spreads compared to its peers, which could mean greater volatility in its earnings relative to changes in crack spreads.
The analyst further noted that the 50% of midstream assets that support Delek US's refining and logistics operations should be valued at a refining multiple. This valuation approach implies that the assets are not undervalued and thus do not provide a basis for a more optimistic stock price target.
In other recent news, Delek US Holdings (NYSE:DK), Inc. reported a net loss of $37 million and negative cash flow for its second quarter, despite achieving record throughput and advancing strategic initiatives.
The company also initiated a significant expansion of its share repurchase program, with an additional $400 million approved by the Board of Directors. Concurrently, Delek Logistics Partners, LP, announced its intention to offer an additional $100 million in senior notes, maturing in 2029, to reduce the debt from its revolving credit facility.
Mizuho Securities maintained a Neutral rating on Delek US shares, noting decreased quarter-over-quarter earnings due to surplus product supply. However, Mizuho also highlighted Delek's efficient management of refineries and progress in commercial strategies and cost-saving measures.
JPMorgan upgraded Delek US's stock from Underweight to Neutral, raising the price target to $26.00, in response to strategic reinvestments by the company. On the other hand, TD Cowen revised Delek US's stock forecast, adjusting the price target to $18.00 from $19.00, while maintaining a Sell rating.
InvestingPro Insights
Recent data from InvestingPro adds context to BofA Securities' Underperform rating on Delek US (NYSE: DK). The company's stock has taken a significant hit, with a 40.67% price decline over the past six months, aligning with the analyst's cautious outlook. This downward trend is further emphasized by the stock trading near its 52-week low, at just 52.02% of its 52-week high.
InvestingPro data reveals that Delek US has a market capitalization of $1.13 billion and a concerning P/E ratio of -8.64 for the last twelve months as of Q2 2024. This negative P/E ratio reflects the company's current unprofitability, which is consistent with BofA's concerns about the company's refinery performance and earnings volatility.
Two key InvestingPro Tips shed light on Delek's financial situation. First, the company "suffers from weak gross profit margins," which supports BofA's assessment of Delek's refinery efficiency. Second, "analysts anticipate sales decline in the current year," suggesting ongoing challenges for the company's revenue streams.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on Delek US, providing a deeper understanding of the company's financial health and market position.
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