On Friday, JPMorgan reiterated its Neutral rating and $51.00 price target for HF Sinclair (NYSE: DINO), following adjustments to the company's third-quarter earnings per share (EPS) estimates. The firm revised its EPS projection for HF Sinclair downward to $0.20 from the previous $0.70, citing lower refining captures as the primary reason for the change. This estimate falls below the Street consensus of $0.54.
In a detailed segment earnings review, the firm estimates a refining operating loss of $54 million, with a forecasted crude throughput of 585,000 barrels per day, which is at the midpoint of the company's guidance range of 570,000 to 600,000 barrels per day.
The estimated consolidated gross margin is $10.11 per barrel, a slight decrease from the second quarter's $11.33 per barrel, due to a mix of market indicators and reduced captures. Factors contributing to the capture declines include narrower crude differentials, market backwardation, and the timing of turnarounds.
For the lubricants segment, the operating income is expected to be approximately $65 million, a decrease compared to the previous quarter, attributed to seasonal volume variations. The midstream segment is anticipated to maintain its operating income at $89 million, consistent with the second quarter.
Research and development (R&D) is projected to see a slight dip in earnings before interest, taxes, depreciation, and amortization (EBITDA) to negative $1 million, just below the second quarter's $2 million. The marketing segment is expected to experience an increase in operating income to roughly $15 million, driven by higher volumes.
JPMorgan's cash flow model for HF Sinclair includes approximately $130 million in cash from operations, which accounts for about $100 million in turnaround costs and assumes a neutral working capital. Capital expenditures, excluding turnaround costs, are estimated at around $143 million, resulting in a free cash flow (FCF) deficit of $14 million. The firm also anticipates dividends of approximately $95 million and $100 million in open-market share repurchases, with an expected ending cash balance of about $658 million.
In other recent news, HF Sinclair reported a decrease in earnings per share from $0.65 to $0.36, as well as a reduction in earnings before interest, taxes, depreciation, and amortization (EBITDA) from $365 million to $299 million, according to Piper Sandler's revised third-quarter forecasts. Despite these downward revisions, Piper Sandler maintains an Overweight rating on HF Sinclair shares, citing the company's resilient non-refining income streams and less sequential earnings degradation compared to its peers.
In another development, HF Sinclair announced its financial results for the second quarter of 2024, presenting a net income of $152 million, a decrease from the previous year. The company also reported an adjusted net income of $149 million and a decline in adjusted EBITDA to $406 million. However, HF Sinclair experienced improved utilization rates and sales volumes in its refining segment, alongside positive EBITDA in its renewables segment.
These recent developments also include HF Sinclair's strategic plans for 2024, which involve an investment of around $800 million in sustaining capital expenditures and a distributor partnership to expand the Solar branded business in Europe, the Middle East, and Africa. Despite the challenges, HF Sinclair returned $467 million to shareholders through dividends and share repurchases, ending the quarter with total liquidity of approximately $3.4 billion.
InvestingPro Insights
Adding to JPMorgan's analysis, recent InvestingPro data offers additional context for HF Sinclair's financial position. The company's P/E ratio stands at 7.88, suggesting it may be undervalued relative to its earnings. This aligns with the current market cap of $9.1 billion, which could indicate potential upside if the company meets or exceeds expectations.
InvestingPro Tips highlight that management has been aggressively buying back shares, which corroborates JPMorgan's projection of $100 million in open-market share repurchases. This strategy, combined with HF Sinclair's high shareholder yield, demonstrates a commitment to returning value to shareholders despite the challenging market conditions noted in the earnings forecast.
It's worth noting that HF Sinclair has maintained dividend payments for 37 consecutive years, a testament to its financial stability. However, the company faces headwinds, as InvestingPro Tips also indicate that net income is expected to drop this year, aligning with JPMorgan's downward revision of Q3 EPS estimates.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for HF Sinclair, providing a deeper dive into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.