On Friday, Piper Sandler adjusted its price target for HF Sinclair (NYSE:DINO) shares, a petroleum refining company, lowering it to $58.00 from the previous $65.00. Despite the reduction, the firm maintained an Overweight rating on the stock.
The adjustment follows a reassessment of the company's financial projections, with Piper Sandler noting a significant expected decline in earnings before interest, taxes, depreciation, and amortization (EBITDA).
The firm has reduced its second quarter and full-year 2024 EBITDA estimates for HF Sinclair by 25% and 12%, respectively. This revision indicates a potential downside to the consensus estimates on Wall Street, with an anticipated 20% and 6% shortfall for each period.
Furthermore, the earnings per share (EPS) are also expected to fall below the Street estimates, with a predicted average downside of 42% for the second quarter and 22% for the full fiscal year of 2024.
Piper Sandler's revised price target is grounded in a sum-of-the-parts (SOTP) valuation for the years 2024 and 2025. The valuation assumes various forward earnings multiples applied to different segments of HF Sinclair's business.
These include a 4.50 times enterprise value to EBITDA (EV/EBITDA) multiple for refining, 7.5 times for rack-forward lubricants, 4.3 times for rack-back lubricants, and a corporate blended multiple of 4.77 times.
The renewables sector of HF Sinclair's operations is valued using a 9 times EV/EBITDA multiple based on the projected EBITDA for 2024 and 2025, which represents a 25% discount to DGD (Diamond Green Diesel) per gallon EBITDA.
The valuation also takes into account capital costs that have yet to be incurred. Additionally, the firm's holdings in the underlying master limited partnership (MLP) are valued at current market prices, adjusted for non-recourse net debt.
In comparison to its peers, HF Sinclair is perceived to have a higher downside risk heading into the second quarter results. Piper Sandler specifically identified Valero Energy (NYSE:VLO) as being in a relatively better position, with only a 20% anticipated downside, while other competitors such as PBF Energy (NYSE:PBF) and Par Pacific Holdings (NYSE:PARR) alongside HF Sinclair are expected to face more significant challenges.
In other recent news, HF Sinclair Corporation reported strong first-quarter results, highlighted by a net income of $315 million and an adjusted net income of $142 million. The energy company also announced a new $1 billion share repurchase authorization and maintained a regular quarterly dividend of $0.50 per share.
These developments follow the departure of Vice President, Controller, and Chief Accounting Officer, Indira Agarwal, with CFO Atanas H. Atanasov assuming her responsibilities until a permanent replacement is found.
Adding to the recent news, Piper Sandler reduced its price target for HF Sinclair from $70.00 to $65.00 due to narrowing Western Canadian Select (WCS) differentials. Despite the adjustment, the analyst firm maintained an Overweight rating on the company's stock. The narrowing of the WCS differentials is expected to impact the second quarter capture rates for refineries that process WCS crude, including those operated by HF Sinclair.
These recent developments provide valuable insights into the company's financial health and strategic direction. As HF Sinclair navigates these changes, it continues to focus on operational efficiency and shareholder value, anticipating a favorable market environment and strong earnings and cash flow in the upcoming summer driving season.
InvestingPro Insights
As HF Sinclair (NYSE:DINO) navigates a challenging economic environment, real-time data and insights from InvestingPro provide a deeper understanding of the company’s financial health and market position. According to the latest metrics, HF Sinclair boasts a market capitalization of $10.09 billion and trades at a Price/Earnings (P/E) ratio of 6.63, reflecting a market that currently values the company’s earnings quite attractively. Additionally, the company's Price/Book ratio as of the last twelve months ending Q1 2024 is 0.99, suggesting that the stock may be reasonably valued in terms of its assets.
InvestingPro Tips highlight that HF Sinclair’s management has been actively involved in share buybacks, a sign of confidence in the company's valuation and future. Furthermore, the company has a strong track record of maintaining dividend payments for 37 consecutive years, with a noteworthy dividend yield of 3.81% as of the most recent data. This could appeal to income-focused investors, especially in the current market where steady income streams are highly valued.
For readers interested in a more comprehensive analysis, InvestingPro offers additional tips on HF Sinclair, including insights into analysts' earnings revisions, stock volatility, and gross profit margins. With a total of 10 InvestingPro Tips available for HF Sinclair, investors can gain a multifaceted view of the company's prospects. Unlock these valuable insights and take advantage of an additional 10% off a yearly or biyearly Pro and Pro+ subscription with the coupon code PRONEWS24.
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