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.
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.