Energy

Refiners May Be Fully Valued: Deutsche Bank Has Just 3 to Buy Now

Lee Jackson

Published: March 16, 2016 10:40 am

Last Updated: January 13, 2020 11:53 am

The refiners had an outstanding run while some the major oil companies were getting hammered, but it appears that the outperformance may have caught up with them. With some of the bigger players indicating they may have to cut capital expenditures by as much as 30%, this could bode well for some of the top companies, as they have far better balance sheets, but still reflects caution.

So are any refiners still a buy? In a new research report, Deutsche Bank says yes, but not many are attractive to the analysts now. In fact in the firm’s coverage of seven companies, only three are rated Buy. With potential free-cash-flow yield upside in the 4% range, the Deutsche Bank stocks to buy still make good sense.

HollyFrontier

This is smaller cap company that the analysts feel comfortable about now. HollyFrontier Corp. (NYSE: HFC) is an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel and other specialty products. It markets its refined products principally in the Southwest, the Rocky Mountains extending into the Pacific Northwest, and other neighboring Plains states.

HollyFrontier operates through its subsidiaries a 135,000 barrels per stream day (bpsd) refinery located in El Dorado, Kan.; a 125,000-bpsd refinery in Tulsa, Okla.; a 100,000-bpsd refinery located in Artesia, N.M.; a 52,000-bpsd refinery located in Cheyenne, Wyo.; and a 31,000-bpsd refinery in Woods Cross, Utah.

One positive for the company is that the decline in the stock price, which is over 30% since the beginning of December, has knocked the price-to-earnings (P/E) multiple on estimated 2016 earnings to a very modest 11.36. That is far below the 16.4 P/E that the company posted between the third quarter of 2013 and last year.

Holly Frontier investors are paid a very solid 3.75% dividend. The Deutsche Bank price objective for the stock is $57, and the Thomson/First Call consensus target is $44.31. The shares closed most recently at $35.23.

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