Is Delek Logistics Partners LP (DKL) Too Good to Be True? A Comprehensive Analysis of a ...
Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Delek Logistics Partners LP (NYSE:DKL). The stock, which is currently priced at 41.02, recorded a loss of 1.51% in a day and a 3-month decrease of 25.5%. The stock's fair valuation is $61.14, as indicated by its GF Value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
Identifying Potential Risks
However, investors need to consider a more in-depth analysis before making an investment decision. Despite its seemingly attractive valuation, certain risk factors associated with Delek Logistics Partners LP should not be ignored. These risks are primarily reflected through its low Altman Z-score of 1.78. These indicators suggest that Delek Logistics Partners LP, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Understanding the Altman Z-score
Before delving into the details, let's understand what the Altman Z-score entails. Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Company Overview: Delek Logistics Partners LP
Delek Logistics Partners LP owns and operates logistics and marketing assets for crude oil and intermediate and refined products. The company's segment includes Pipelines and Transportation; Pipelines and Transportation and Investments in Pipeline Joint Ventures. It generates maximum revenue from the Pipelines and Transportation segment. The pipelines and Transportation segment consist of pipelines, tanks, offloading facilities, trucks, and ancillary assets, which provide crude oil gathering and crude oil, intermediate and refined products transportation and storage services in support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas.
Delek Logistics Partners LP's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Delek Logistics Partners LP's Altman Z-score reveals Delek Logistics Partners LP's financial health may be weak, suggesting possible financial distress. The EBIT to Total Assets ratio serves as a crucial barometer of a company's operational effectiveness, correlating earnings before interest and taxes (EBIT) to total assets. An analysis of Delek Logistics Partners LP's EBIT to Total Assets ratio from historical data (2021: 0.22; 2022: 0.14; 2023: 0.16) indicates a descending trend. This reduction suggests that Delek Logistics Partners LP might not be utilizing its assets to their full potential to generate operational profits, which could be negatively affecting the company's overall Z-score.
Conclusion
Despite its seemingly attractive valuation, the low Altman Z-score and declining EBIT to Total Assets ratio suggest that Delek Logistics Partners LP might be a potential value trap. Therefore, investors should conduct thorough due diligence before considering an investment in this company.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
This article first appeared on GuruFocus.
