On Friday, Piper Sandler adjusted its price target on shares of Delek US Holdings, Inc. (NYSE:NYSE:DK), reducing it to $25 from the previous $30 while maintaining a Neutral rating on the stock. The firm's assessment indicates that the current quarter has not shown many positive trends for the refining company.
Key market movements were noted that could potentially affect the company's performance at the margins. Among these, the significant underperformance of distillate compared to gasoline in the second quarter was highlighted, with distillate cracks decreasing by $11.00 per barrel from the first quarter of 2024, in contrast to gasoline, which saw a positive shift of $1.00 per barrel.
The analysis also pointed out a substantial reversal in Syncrude differentials, moving from a $10 per barrel advantage over Brent in the first quarter to a $2 per barrel in the second quarter. Additionally, West Coast refining margins were reported to be relatively stronger, providing a potential benefit to certain players in the industry. In contrast, the Maya/Mars differentials remained flat, and Western Canadian Select (WCS) differentials saw a decline of $4 per barrel.
Furthermore, marketing margins were described as weaker than typically seen in the second quarter, which could negatively impact Delek US. Piper Sandler's price target is based on a sum-of-the-parts (SOTP) valuation for the years 2024 and 2025. The valuation assumes a 3.0 times blended forward EV/EBITDA multiple for refining, 7.0 times for retail, and 7.0 times for logistics, excluding the Master Limited Partnership (MLP).
Delek's holdings in the underlying MLP are valued at current market prices with a 20% liquidation discount due to the company's high ownership stake of 80% in Delek Logistics Partners (NYSE:DKL).
The firm also applied a 25% discount to the SOTP equity value and did not include any option value for the Bakersfield Biorefinery, citing a lack of clear visibility on its potential contribution to earnings.
In other recent news, Delek US Holdings, Inc. reported mixed Q1 results, with a net loss of $33 million, despite strong operational results in its Refining and Logistics segments. The company is exploring strategic options for its retail and marketing businesses, aiming to unlock value across its system. Analysts from JPMorgan, Piper Sandler, Wells Fargo, and TD Cowen have adjusted their price targets for Delek, with TD Cowen downgrading the stock from Hold to Sell and lowering the price target to $20.
This reflects an expectation that Delek will achieve a 65% capture rate on indicator cracks, consistent with the company's historical performance. JPMorgan and Wells Fargo have retained an Underweight rating, while Piper Sandler maintains a Neutral rating. Piper Sandler's revised price target is informed by a sum-of-the-parts valuation for the fiscal years 2024 and 2025. Wells Fargo's lower price target results from modeling adjustments which take into account the latest quarterly results and revised assumptions about refining margins, operational expenses, and throughput guidance.
InvestingPro Insights
Amid the mixed industry outlook for Delek US Holdings, Inc. (NYSE:DK), real-time data from InvestingPro provides additional context for investors considering the company's stock. The company's market capitalization currently stands at $1.54 billion, reflecting the scale of the business in the refining sector. Notably, the stock is trading at a price-to-book ratio of 1.8 as of the last twelve months, which could suggest that it is reasonably valued in terms of its assets. Additionally, the gross profit margin in the same period was 5.79%, indicating potential challenges in maintaining profitability.
InvestingPro Tips suggest that the stock is currently in oversold territory according to the Relative Strength Index (RSI), which might interest investors looking for entry points in a potentially undervalued stock. However, caution is advised as analysts have revised their earnings downwards for the upcoming period, and a sales decline is anticipated in the current year. Investors should also note that the stock generally trades with low price volatility, which could align with strategies favoring stability.
For those seeking a deeper dive into Delek US Holdings' financials and future prospects, InvestingPro offers additional tips for a comprehensive analysis. Readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes access to these valuable insights. There are 6 more InvestingPro Tips available that could help investors make a more informed decision about their investment in Delek US Holdings.
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