Delek to Post Lowest Fall in Earnings in 2019



Delek’s earnings estimate

Wall Street analysts estimate Delek US Holdings (DK) to post the smallest fall in earnings in 2019. Valero Energy (VLO) and Marathon Petroleum (MPC) are expected to post a 10% and 21% drop in earnings, respectively, in 2019.

Delek has refining, logistics, and retail business segments. Delek’s EPS are estimated to fall by about 4% from $4.8 in 2018 to $4.6 in 2019. This is mainly because of the anticipated decline in oil spreads in the year. Further, Delek’s EPS could fall by 5% YoY to $1.3 in Q2 2019.

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The Midland oil spread (the difference between WTI Cushing oil and WTI Midland oil) has declined from an average of $7.3 per barrel in 2018 to $1.9 per barrel year-to-date. The spread is vital for Delek as it had boosted the company’s earnings sharply in the previous year. Delek can refine about 70% of the Permian crude in its system.

The benchmark industry crack, the USGC WTI 3-2-1, has stood at $17.1 per barrel in the year so far, higher than the $16.2 per barrel in 2018. Thus, the impact of lower oil spread on Delek’s refining earnings could be partially offset by the higher crack.

Valuation and dividend yield

Delek trades at a forward PE of 8.4x, just below the peer average of 8.5x, which is due to higher debt on its balance sheet and a tighter cash flow position. DK’s total debt to capital ratio stands at 48%, above the peer average of 36%.

Further, Delek’s dividend yield currently stands at 3.1%, below the peer average of 4.1%. In the first quarter, the company returned $67 million to shareholders via dividends and buybacks. Further, Delek has raised its dividend by 12% YoY to $0.28 per share in the current quarter. Also, in the second quarter, Delek expects to repurchase shares worth $60 million.

Overall, Delek has the least earnings fall rate but with a lower dividend yield and weaker financials in comparison to peers.


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