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Anatomy of Success: HollyFrontier (HFC)

Madeleine Johnson
Anatomy of Success: HollyFrontier (HFC)

The Zacks Rank system is a unique tool used to identify a stock’s expected performance over a one-to-three-month time period. More specifically, a company that receives the coveted #1 (Strong Buy) ranking is expected to be one of the best performing stocks over the near term, as only the top 5% of all companies rated by Zacks receives this standing.

The Zacks Rank helps find companies both big and small and has a proven track record of positive returns. Not only does this system help discover the best of the best, but it also enables you to stay in these top companies while they continue to appreciate in value past the initial time horizon.

Below, you’ll find an example that illustrates how to trade a Zacks Rank #1 stock, and how to ride the wave of earnings estimates revisions for market-beating gains.

HollyFrontier Corporation (HFC)

HollyFrontier is a petroleum refiner headquartered in Dallas, Texas, and produces and markets gasoline, diesel, jet fuel, asphalt, heavy products, and specialty lubricant products.

HFC was first added to the top-ranked list back on December 15 a few weeks after reporting nice third-quarter fiscal 2017 results. Earnings of $1.14 per share beat the Zacks Consensus Estimate, while revenues of $3.7 billion also beat our consensus and grew 31% year-over-year. Crude oil charges averaged 454,790 barrels per day, and on a per barrel basis, consolidated refinery gross margin was $14.55 per produced barrel, up 48% compared to $9.83 for the third quarter of 2016. HFC closed at $47.86 per share that trading day.

The next time HFC was added to the #1 (Strong Buy) list was on May 11 after impressive first quarter 2018 results. Both its top and bottom line flew past the Zacks Consensus, with revenues up 34% compared to the prior year period. Total operated expenses hit $320.3 million. Overall, these strong results reflected HollyFrontier’s capacity to benefit from the refining margins and crude spreads available during Q1. Six months after first becoming a #1 pick, shares increased over 41% to $67.62.

HFC was added to the Strong Buy list a third time on July 27 after its Q2 earnings report was released. Even though EPS missed our consensus estimate, revenues managed to beat and grow 29% year-over-year. The company’s Refining and Marketing segment reported adjusted EBITDA of $384.8 million compared to $192.8 million in Q2 2017. And, HFC’s Lubricants and Specialty Products segment reported EBITDA of $39.4 million, driven by consistent Rack Forward sales volumes and margins. Eight months after first becoming a #1 stock, shares increased almost 55% to $74.07.

HFC is currently a #3 (Hold) on the Zacks Rank, and the stock has gained more than 126% in the past one-year period.

This table shows the price performance of HFC (in red), as well as the 12-month forward looking EPS estimate (in green), over the past year-ago period. During this stretch, HFC never moved lower than a Zacks Rank #3 (Hold).

By utilizing the Zacks Rank, investors are able to easily identify elite stocks that are best positioned to beat the market on a consistent basis, and how to hold those top stocks as they continue to grow.

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