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HollyFrontier’s Forward Valuations: Lower than Peer Average

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HollyFrontier’s peer comparison

In an earlier part of this series, we discussed HollyFrontier’s (HFC) historical valuation trends. In this part, we’ll compare the company’s forward valuations with those of its peers.

Before we proceed with the peer comparison, let’s look at the market capitalizations of US refiners. HollyFrontier’s market cap stands at $6.8 billion, while Western Refining (WNR) and PBF Energy (PBF) stand at $3.6 billion and $3.5 billion, respectively. Larger peers Phillips 66 (PSX), Valero (VLO), and Marathon Petroleum (MPC) have market caps of $40 billion, $33 billion, and $24 billion, respectively.

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HollyFrontier’s forward valuations

HollyFrontier (HFC) is currently trading at a forward PE (price-to-earnings) ratio of 8.9x, below the peer average of 9.1x. This looks attractive compared with the above-average forward PE ratios of peers Tesoro (TSO), Phillips 66 (PSX), Delek US Holdings (DK), and Western Refining (WNR).

Lower oil prices coupled with higher demand for refined products will likely boost EBITDA (earnings before interest, tax, depreciation, and amortization) for many refiners. Rising EBITDA results in a lower EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio, assuming EV (enterprise value) remains unchanged.

HollyFrontier is currently trading at a forward EV/EBITDA of 4.8x, below the peer average of 5.4x. Though most of the company’s peers are trading closer to the average forward EV/EBITDA, Phillips 66 (PSX) and Northern Tier Energy (NTI) are trading significantly above it.

The PowerShares Dynamic Large Cap Value ETF (PWV) contains Marathon Petroleum (MPC), Valero (VLO), and Phillips 66 (PSX) in its portfolio and has ~10% exposure to energy-sector stocks.

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