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Why These Integrated Energy and Refiner Stocks Could Spell Trouble

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PBF Energy

On April 3, 2017, PBF Energy (PBF) had the highest short-interest-to-equity float ratio among our list of integrated energy and refiner stocks. Its short-interest-to-equity float ratio is now 13.2%.

In the past three months, the stock has fallen 22.7%, while its short-interest-to-equity float ratio has risen 37.6%. Its net debt-to-EBITDA ratio is 1.7x.

In the past four quarters, PBF Energy’s revenue rose 41.3%. Its operating income was $139.8 million in 4Q16, as compared to its adjusted operating loss of $176.0 million in 4Q15. Its operating profit margin is 2.9%, as compared to the industry median of 4.9%. PBF Energy is also among the high implied volatility stocks that we looked at in Part 1 of this series.

Remember, high short interest in a stock reflects the expectation of a drop in the stock. It can cause the stock’s implied volatility to rise.

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Alon USA Energy

Alon USA Energy (ALJ) has a short interest-to-equity float ratio of 13.1%. In the past three months, Alon USA Energy stock has fallen 5.1%, but its short-interest-to-equity float ratio rose only 0.4% during the same period. Its net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio is 4.6x.

In the past four quarters, Alon USA Energy’s revenue rose 29.3%. But it incurred an adjusted operating loss of $9.6 million in 4Q16, as compared to an adjusted operating loss of $1.4 million in 4Q15. Its operating profit margin is -1.2%.

Tesoro

Tesoro’s (TSO) short-interest-to-equity float ratio is 8.8%. In the past three months, the stock has fallen 9.3%, while its short-interest-to-equity float ratio has risen 25%. The company’s net debt-to-EBITDA ratio is 1.9x.

In the past four quarters, Tesoro’s revenue rose 6.4%, while its adjusted operating income fell 80.1%. Its operating profit margin is now at 7.1%.

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Delek US Holdings

Delek US Holdings’ (DK) short-interest-to-equity float ratio is 8.3%. In the past three months, its stock has fallen 5.5%, while its short interest has risen 34.3%.

In the past four quarters, Delek US Holdings’ revenue fell 3.4%. It incurred an adjusted operating loss of $44.1 million in 4Q16, as compared to an operating loss of $16.7 million in 4Q15. Its operating profit margin is now at -3.1%.

HollyFrontier

HollyFrontier’s (HFC) short-interest-to-equity float ratio is 8.1%. In the past three months, the stock has fallen 17.5%, while its short interest-to-equity float ratio has fallen 10.8%. Its net debt-to-EBITDA ratio is 1.2x.

In the past four quarters, HollyFrontier’s revenue rose 0.40%. Its operating income was $112.3 million in 4Q16, as compared to an operating loss of $64.7 million in 4Q15. Its operating profit margin is now at 5.8%.

Conclusions

From the analysis in this series, we can make the following observations:

  • Returns and short interest for most of these stocks are inversely related.
  • Traders and investors are more bearish on refiner stocks than on integrated energy stocks. All of the companies leading in short interest are relatively small refiners, with less diversification in their operations. This could reduce their ability to withstand volatility in the refining industry.
  • Smaller refiners also mainly figure among the stocks with the highest implied volatilities, as we saw in Part 1 of this series.

Remember, markets are less bearish on larger and more diversified integrated energy companies. They also figure among the stocks with the lowest implied volatilities, as we saw in Part 1 of this series.

For ongoing updates on this industry, keep checking in with Market Realist’s Integrated Oil & Gas page.

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