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Why Wall Street Analysts Have Mixed Opinions on Delek

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Analysts’ ratings for Delek

With 47% “buy” ratings, Delek US Holdings (DK) stands fifth for analysts among the six US refiners under our review. With 94% “buy” ratings, the top refiner is Marathon Petroleum (MPC). It’s followed by Valero Energy (VLO), Phillips 66 (PSX), and PBF Energy (PBF) with 84%, 72%, and 50% “buy” ratings, respectively.

Seven (or 47%) of the 15 analysts covering Delek have rated it as a “buy” in June. Another eight analysts have rated the stock as a “hold.”

Wall Street analysts have been mixed on Delek’s target price changes. While Cowen and Company has cut its target price on Delek stock from $49 to $46, Citigroup has raised its target price from $37 to $40. Delek’s mean target price of $45 implies a potential upside of 16% from its current level.

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Why do analysts have mixed opinions on Delek?

Analysts’ opinions on Delek are mixed likely due to its recovering financials and expanding asset base offset by the high debt on its balance sheet.

Delek, which had previously been posting losses, started reporting positive earnings in the second quarter of 2018. In the first quarter of 2019, Delek’s adjusted EPS of $1.54 surpassed its estimated EPS of $0.47 by ~230%. In the second quarter of 2019, the company’s EPS could fall a marginal 4% YoY (year-over-year).

Delek’s capex activities aim at increasing its refining flexibility and expanding its midstream network. The company’s current earnings model and midstream developments have the potential to generate annual EBITDA of over $1 billion. The company’s adjusted EBITDA in the first quarter stood at $238 million, a rise of ~126% YoY.

However, Delek has high debt in its capital structure. The company’s total debt-to-capital ratio stood at 48% in the first quarter, the highest among its peers. MPC’s, PSX’s, and VLO’s ratios stood at 39%, 30%, and 32%, respectively, in the quarter.

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