On Tuesday, Piper Sandler adjusted its outlook for HF Sinclair Corporation (NYSE: DINO) shares, reducing the company's price target from $70.00 to $65.00, while maintaining an Overweight rating on the stock.
The adjustment comes in response to narrowing Western Canadian Select (WCS) differentials, which are expected to impact the second quarter capture rates for refineries that process WCS crude.
The narrowing of the WCS differentials by approximately $1.37, or 10%, to $12.21 since the beginning of the second quarter is attributed to the startup of new Trans Mountain Expansion (TMX (TSX:X)) pipeline capacity.
This development is anticipated to affect the performance of West Coast and Mid-Continent refineries, including those operated by HF Sinclair, in the upcoming quarter.
Piper Sandler's revised price target for HF Sinclair is informed by a sum-of-the-parts (SOTP) valuation approach, projecting into the years 2024 and 2025.
The valuation applies a blended forward-year enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 4.50x for refining operations, 7.5x for rack-forward lubricants, and 4.3x for rack-back lubricants.
Additionally, the firm's renewables segment is valued using a 9x EV/EBITDA multiple on the projected 2024/2025 EBITDA, which represents a 25% discount to the dollar per gallon EBITDA of Diamond Green Diesel (DGD).
The valuation also takes into account capital expenditures that have yet to be incurred. Holdings in the underlying master limited partnership (MLP) are valued at current market prices, adjusted for non-recourse net debt.
The analysis by Piper Sandler highlights the dynamic nature of the refining industry and the specific factors influencing HF Sinclair's financial outlook. The revised price target reflects the firm's expectations for the company's performance in light of the current market conditions and industry developments.
InvestingPro Insights
Piper Sandler's revised outlook on HF Sinclair Corporation (NYSE: DINO) takes into account several market factors, but for a more comprehensive view, let's consider some key metrics and InvestingPro Tips. HF Sinclair has a solid track record with a dividend payment history of 37 consecutive years, indicating a commitment to returning value to shareholders. Additionally, InvestingPro Tips highlight that management has been actively repurchasing shares, signaling confidence in the company's value. With a P/E ratio of 7.17 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 6.97, the company trades at a valuation that may attract value investors.
The revenue for the last twelve months as of Q1 2024 stands at $31.43 billion, although it has seen a decline of 17.97% during this period. Despite weak gross profit margins, as indicated by the 10.85% figure, the company operates with a moderate level of debt and liquid assets that exceed short-term obligations, which may provide some financial flexibility. The dividend yield as of the latest data is 3.56%, complemented by a dividend growth of 11.11%, which could be appealing to income-focused investors.
For those interested in further insights and additional metrics that could inform investment decisions, there are more InvestingPro Tips available. You can find a total of 9 additional tips on HF Sinclair Corporation by visiting https://www.investing.com/pro/DINO. To enhance your InvestingPro experience, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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