HollyFrontier Trades at a Discount to the Peer Average



HollyFrontier’s valuations

HollyFrontier (HFC) trades at a forward PE ratio of 8.7x, which is below the peer average of 9.0x. Marathon Petroleum (MPC) and Delek US Holdings (DK) also trade below the peer average with forward PE ratios of 8.4x and 7.4x, respectively.

HollyFrontier stock trades at a forward EV-to-EBITDA multiple of 5.2x, which is lower than the peer average of 5.5x. However, Valero Energy (VLO) and Phillips 66 (PSX) trade above the average EV-to-EBITDA multiple at 5.9x and 6.7x, respectively.

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What does the valuation suggest?

HollyFrontier trades at a discount to the peer averages. However, the stock traded at a premium a few quarters ago. The decline in HollyFrontier stock in the previous and current quarters impacted its valuations. Lower refining cracks and spreads could result in lower refining margins and earnings for the company.

HollyFrontier’s lubricant segment, which the company has been expanding in the past few years, is expected to face weaker base oil cracks in 2019. Weaker base oil cracks could lead to lower Rack Back lubricant earnings for the company. Lower refining earnings and weaker Rack Back earnings could lead to lower earnings for HollyFrontier in 2019. Analysts expect HollyFrontier’s earnings to fall 15% in 2019.

However, HollyFrontier has strong financials to continue its expansion spree. The company had a comfortable debt position and surplus cash flow situation in 2018.


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