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Delek’s Valuation Compared to the Peer Average

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Dec. 31 2018, Updated 10:30 a.m. ET

Delek’s valuations

Delek US Holdings (DK) trades at a forward PE ratio of 4.9x, which is below the peer average of 6.9x. HollyFrontier (HFC) and PBF Energy (PBF) trade below the peer average with forward PE ratios of 6.6x and 6.8x, respectively. Marathon Petroleum (MPC) trades at 7.2x the forward PE ratio, which is above the peer average.

Delek stock trades at a forward EV-to-EBITDA ratio of 3.6x, which is below the peer average of 4.7x. However, Valero Energy (VLO) and Phillips 66 (PSX) trade above the peer average at 5.0x and 6.2x the forward EV-to-EBITDA multiple, respectively.

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Why does Delek have discounted valuations?

Delek’s valuations represent a discount to the peer average due to high debt in its capital structure. The company’s total debt-to-capital ratio of 50% was higher than the peer average of 37% in the third quarter. Usually, higher debt on the balance sheet means a relatively lower capacity to face tough times. HollyFrontier, Valero Energy, and Phillips 66 had total debt-to-capital ratios of 27%, 28%, and 31%, respectively, in the third quarter.

In previous years, Delek posted losses for several quarters. Delek just started posting profits in the past few quarters. The company is recovering in the current financial year. In the current quarter, Delek’s earnings could be impacted by weaker refining cracks.

Delek’s financials are recovering. However, until Delek’s financials strengthen in terms of consistent earnings growth and a comfortable debt position, the company will likely trade below the peer average.

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