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Analyzing Refiners’ Implied Gains, Valuations, and Dividends


Dec. 18 2018, Updated 8:42 a.m. ET

Refining stocks’ implied gains

In this series, we’ll rank refining stocks based on their implied gains. We’ll discuss Wall Street analysts’ mean target price to estimate the stocks’ implied gains. We’ll also look at refiners’ expected earnings growth in 2018, forward PE ratios, and dividend yields.

If we rank refiners based on the implied gains, then Marathon Petroleum (MPC) occupies the top slot. Marathon Petroleum is followed by Valero Energy (VLO) and PBF Energy (PBF). These top three stocks have implied gains above 50%.

Phillips 66 (PSX), Delek US Holdings (DK), and HollyForntier (HFC) have implied gains between 30% and 50%.

The high implied gains in refining stocks are due to the sharp fall in their stock prices in the current quarter. Refining stocks have fallen due to narrowing refining cracks, which indicates weaker fourth-quarter earnings for refiners.

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Earnings growth, valuation, and dividend yield

If we review the above stocks’ expected earnings growth in 2018, then Delek US Holdings is expected to post the highest increase in its earnings. Phillips 66, PBF Energy, and HollyFrontier also have high growth rates. These four companies’ earnings are expected to grow by more than 100% in 2018.

Based on valuations, Delek US Holdings, PBF Energy, and HollyFrontier trade below the peer average of 7.6x. However, other stocks trade above the average.

Valero Energy, PBF Energy, and Phillips 66 have above-average dividend yields. Refining stocks’ average dividend yield stands at 3.3%.


Marathon Petroleum has the highest implied gains, a relatively lower growth rate, an above-average valuation, and a below-average dividend yield. In contrast, PBF Energy has high implied gains, a higher growth rate, a below-average valuation, and an above-average dividend yield.

Next, we’ll discuss Marathon Petroleum.


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