BUSINESS
HF Sinclair Corporation operates as an independent energy company. It produces and markets gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, specialty and modified asphalt, and others. The company also owns and operates refineries located in Kansas, Oklahoma, New Mexico, Utah, Washington, and Wyoming; and markets its refined products principally in the Southwest United States and Rocky Mountains, Pacific Northwest, and in other neighboring Plains states. In addition, it supplies fuels to approximately 1,300 independent Sinclair-branded stations and licenses the use of the Sinclair brand at approximately 300 additional locations, as well as engages in the growing renewables business.
INVESTMENT RATING
With future capital returns forecasted to exceed the cost of capital, DINO is expected to continue to be a modest Value Builder.
HF Sinclair has a current Value Trend Rating of A (Highest Rating).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing highly consistent signals. HF Sinclair has a very high Power Rating of 89 and a very high Appreciation Score of 91, and the Highest Value Trend Rating results.
HF Sinclair’s stock is selling well below targeted value. The current stock price of $58.53 compares to targeted value 12 months forward of $234.
HF Sinclair’s very high appreciation potential results in an appreciation score of 91 (only 9% of the universe has greater appreciation potential.)
HF Sinclair has a Power Rating of 89. (This very high Power Rating indicates that DINO has a better chance of achieving attractive investment performance over the near to intermediate term than all but 11% of companies in the universe.)
Factors contributing to this very high Power Rating include: recent price action has been favorable; the Petroleum Refining comparison group is in a strong phase currently; and earnings estimate behavior for DINO has been slightly favorable recently.
INVESTMENT PROFILE
DINO’s financial strength is high. Financial strength rating is 89.
Relative to the S&P 500 Composite, HF Sinclair Corp has significant Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that DINO is normal risk. Low financial leverage is a positive for DINO. Relative weaknesses include: low historical profitability, high stock price volatility, low expected growth, low historical growth, and high earnings variability. DINO’s valuation is low: high dividend yield, low P/E ratio, and low price/book ratio. DINO has unusually low market capitalization.
CURRENT SIGNALS
HF Sinclair’s current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; rising tax keep rate; and rising leverage.
HF Sinclair’s current technical position is very strong. The stock price is in a 4.2 month up move. The stock has appreciated 58.9% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Slight negative changes in fundamentals have recently occurred for HF Sinclair Corp (NYSE: DINO): significant quarterly sales deceleration occurred.
In light of this new information we are reviewing our current Overall Rating of A. This review will be completed in the next several days.
HF Sinclair Corp (NYSE: DINO) has reported a loss for its fourth fiscal quarter (ending December 31) of $-0.34 versus $2.92 for the same period a year ago. For the latest four quarters through December 31, E.P.S. were $8.29 versus $14.28 for the same period a year ago.
HF Sinclair Corp (NYSE: DINO) stock declined modestly by -1.4% on 2/21/24. The stock closed at $58.53. Moreover, unusually high trading volume at 175% of normal accompanied the decline. The stock has declined -1.3% during the last week but has been exceptionally strong relative to the market over the last nine months.
CASH FLOW
In 2022, HF Sinclair generated a very significant increase in cash of +$1,431 million (+610%). Sources of cash were much larger than uses. Cash generated from 2022 EBITDA totaled +$4,766 million. Non-operating uses consumed -$109 million (-2% of EBITDA). Cash taxes consumed -$470 million (-10% of EBITDA). Re-investment in the business amounted to -$3,331 million (-70% of EBITDA). On a net basis, debt investors pulled out -$58 million (-1% of EBITDA) while equity investors contributed +$633 million (+13% of EBITDA).
HF Sinclair’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Hf Sinclair Peer Group. In most years, HF Sinclair was in the third quartile and second quartile. Currently, HF Sinclair is at median at -2% of EBITDA (-$109 million).
HF Sinclair’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Hf Sinclair Peer Group. (Since 2020 Cash Taxes, %EBITDA has experienced a very sharp decline.) In most years, HF Sinclair was in the top quartile. Currently, HF Sinclair is upper quartile at -10% of EBITDA (-$470 million).
HF Sinclair’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Hf Sinclair Peer Group. In most years, HF Sinclair was in the lower quartile and third quartile. Currently, HF Sinclair is lower quartile at -70% of EBITDA (-$3,331 million).
HF Sinclair’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Hf Sinclair Peer Group. In most years, HF Sinclair was in the top quartile and lower quartile. Currently, HF Sinclair is slightly above median at -1% of EBITDA (-$58 million).
HF Sinclair’s Equity Investors, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by stability for the Hf Sinclair Peer Group. (Since 2020 Equity Investors, %EBITDA has accelerated very sharply.) In most years, HF Sinclair was in the lower quartile and top quartile. Currently, HF Sinclair is upper quartile at +13% of EBITDA (+$633 million).
HF Sinclair’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Hf Sinclair Peer Group. In most years, HF Sinclair was in the lower quartile and top quartile. Currently, HF Sinclair is at the upper quartile at +30% of EBITDA (+$1,431 million).
HF Sinclair’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Hf Sinclair Peer Group as well. In most years, HF Sinclair was in the third quartile. Currently, HF Sinclair is at the lower quartile at +4%.
PROFITABILITY
HF Sinclair’s return on equity has improved very significantly since 2013. The current level of 22.8% is 1.86X the low for the period and is -27.9% from the high.
This very significant improvement was due to very strong positive trend in pretax operating return supported by strong positive trend in non-operating factors.
The productivity of HF Sinclair’s assets declined over the full period 2013-2023: asset turnover has experienced a downtrend although it experienced a very sharp recovery after the 2020 low.
More than offsetting this trend, however, pretax margin enjoyed a volatile overall uptrend that accelerated very sharply from the 2020 level.
Non-operating factors (income taxes and financial leverage) had a significant positive influence on return on equity.
HF Sinclair’s return on equity is at the upper quartile (22.8%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is substantially above median (16.1%) reflecting asset turnover that is upper quartile (1.76X) and at median pretax margin (9.1%).
Tax “keep” rate (income tax management) is at the lower quartile (73.7%) resulting in after tax return on assets that is above median.
Financial leverage (leverage) is at median (1.92X).
GROWTH RATES
There are no significant differences between HF Sinclair’s longer term growth and growth in recent years.
HF Sinclair’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 7.6% per year. (More recently it has been 46.4%.)
Total asset growth has been 8.8% per year.
Annual E.P.S. growth has been 14.4% per year.
Equity growth has been 6.2% per year. (More recently it has been 24.9%.)
HF Sinclair’s consensus growth rate forecast (average of Wall Street analysts) is 0.7% — substantially below the average of the historical growth measures.
Relative to the Hf Sinclair Peer Group, HF Sinclair’s historical growth measures are generally second quartile. Revenue growth (7.6%) has been above median. E.P.S. growth (14.4%) has been slightly above median. Total asset growth (8.8%) has been at median. Equity growth (6.2%) has been below median.
In contrast, consensus growth forecast (0.7%) is lower quartile.
PRICE HISTORY
Over the full time period, HF Sinclair’s stock price performance has been variable and significantly below market. Between April, 2013 and February, 2024, HF Sinclair’s stock price rose +18%; relative to the market, this was a -62% loss. Significant price moves during the period: 1) July, 2021 – November, 2022: +112%; 2) October, 2020 – February, 2021: +105%; 3) October, 2019 – March, 2020: -55%; 4) May, 2018 – May, 2019: -51%; 5) May, 2017 – May, 2018: +223%; and 6) October, 2015 – June, 2016: -51%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 3.0% is slightly above median relative to the S&P 500 Composite.
In addition to being slightly above median relative to S&P 500 Composite, current annual total return performance through January, 2024 of 3.0% is below median relative to HF Sinclair Corp Peer Group.
Current 5-year total return performance of 3.1% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of 3.1% relative to S&P 500 Composite, HF Sinclair’s total return performance is below median relative to HF Sinclair Corp Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, DINO’s overall valuation is exceptionally low. All five factors are lower quartile. The highest factor is the ratio of enterprise value/assets, followed by the price/equity ratio, then by the ratio of enterprise value/earnings before interest and taxes, then by the price/earnings ratio. The lowest factor is the ratio of enterprise value/revenue.
Relative to HF Sinclair Peer Group, DINO’s overall valuation is exceptionally low. All five factors are lower quartile. The highest factor is the ratio of enterprise value/assets, followed by the price/equity ratio, then by the ratio of enterprise value/revenue, then by the ratio of enterprise value/earnings before interest and taxes. The lowest factor is the price/earnings ratio.
HF Sinclair has a major value gap compared to the median. For DINO to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.49X to 1.18X. If DINO’s ratio of enterprise value/revenue were to rise to 1.18X, its stock price would be higher by $105 to $163.
For DINO to achieve upper quartile valuation relative to the HF Sinclair Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.49X to 1.76X. If DINO’s ratio of enterprise value/revenue were to rise to 1.76X, its stock price would increase by $192 from the current level of $59.
VALUE TARGETS
With future capital returns forecasted to exceed the cost of capital, DINO is expected to continue to be a modest Value Builder.
HF Sinclair’s current Price Target of $234 represents a +301% change from the current price of $58.53.
This very high appreciation potential results in an appreciation score of 91 (only 9% of the universe has greater appreciation potential.)
Reinforcing this high Appreciation Score of 91, the high Power Rating of 89 contributes to an Value Trend Rating of A.
HF Sinclair’s current Price Target is $234 (+36% from the 2022 Target of $172 and +301% from the 02/21/24 price of $58.53). This dramatic rise in the Target is the result of a +44% increase in the equity base and a -5% decrease in the price/equity multiple. The forecasted decline in cost of equity has a very large positive impact on the price/equity multiple and the forecasted increase in growth has a very large positive impact as well. More than offsetting these Drivers, the forecasted decline in return on equity has a very large negative impact.
PTR’s return on equity forecast is 10.1% — significantly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is well below the 2015 peak of 16%.
PTR’s growth forecast is 25.0% — substantially above our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly above the 2016 low of 0%.
PTR’s cost of equity forecast is 7.1% — below recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2014 and 2022. The current forecast is above the 2021 low of 3.1%.
At HF Sinclair’s current price of $58.53, investors are placing a negative value of $-9 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 12.0% per year, and a return on equity of 23.5% versus a cost of equity of 13.2%.
PTR’s 2024 Price Target of $234 is based on these forecasts and reflects an estimated value of existing assets of $73 and a value of future investments of $162.
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