PBF Energy Inc. PBF is well poised to grow on the back of sophisticated and complex refining assets. However, rising costs and debt burden are persistent concerns.
Headquartered in Parsippany, NJ, PBF Energy is a leading refiner of crude. Through five oil refineries and associated infrastructure in the United States, the company provides end products that comprise heating oil, transportation fuels, lubricants and many related products. PBF Energy, with a market cap of more than $2.7 billion, has an expected earnings growth rate of 6.8% for the next five years. It has lost 27.4% in the last six months compared with 21% decline of the industry it belongs to.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Favoring the Stock?
PBF Energy operates through five refineries spread across East Coast, Gulf Coast, West Coast and Mid-continent areas, representing a diversified asset base. Notably, the company’s daily processing capacity of 884,000 barrels of crude is higher than most of its peers. Through 2019, it anticipates total daily throughput volumes from the East Coast between 330,000 and 350,000 barrels. The same from the Mid-Continent and Gulf Coast is projected within 150,000-160,000 and 180,000-190,000 barrels, respectively. This will boost the company’s results in the next two quarters.
PBF Energy has one of the most complex refining systems in the United States, with an overall Nelson Complexity Index reading of 12.8. This reflects that its oil refineries, having the capacity to generate lighter and better grades of refined products, are more sophisticated than most of the other refiners. This positions the company ahead of its peers in terms of IMO 2020 compatibility, which is designed to reduce sulfur content in marine fuels.
Markedly, the company pays out handsome dividends that have been consistently higher than the broader industry over the past five years. Currently, the dividend yield of the stock stands at 5.3%, higher than industry average of 4.4%.
Through a 48% limited partner interest in PBF Logistics LP, PBF Energy has exposure in diverse midstream assets comprising oil and refined product terminals, pipelines and storage assets. Eventually, the company enjoys stable cash flow on the back of long-term commitments of shippers for transporting or storing minimum volume through PBF Logistics’ midstream properties.
However, there are a few factors that are impeding the growth of the stock lately.
PBF Energy’s debt-to-capitalization ratio stands at 37%, higher than the industry average. This reflects that its balance sheet has more exposure to debt than the broader industry. Notably, at the end of second-quarter 2019, the company had cash and cash equivalents of only $204.1 million, while its total debt was as high as $2 billion.
Second-quarter 2019 crude oil and feedstock throughput volumes were 854.1 thousand barrels per day (BPD), down from 866.6 thousand BPD in the year-ago period. Moreover, the company’s refinery operating expense per barrel of throughput increased to $5.27 from $5.11 in second-quarter 2018. As a result, its refining margin per barrel of throughput — following strong turnarounds and maintenance activities — significantly declined. This affected the bottom line in the quarter. Its bottom line will be further hampered, if the metrics fail to improve.
To Sum Up
Despite significant prospects, the company’s increasing costs and debt burden are concerns. Nevertheless, we believe that systematic and strategic plan of action will drive its long-term growth.
Stocks to Consider
Some better-ranked stocks in the energy sector are given below:
NuStar Energy L.P. NS is one of the largest independent liquids terminal and pipeline operators in the United States. Its third-quarter earnings per unit are expected to surge more than 100% year over year. It has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Enbridge Inc. ENB is a leader in energy transportation and distribution in North America and internationally. The Zacks Rank #2 company has not missed earnings estimates in the trailing four quarters. It delivered an average positive earnings surprise of 11.3% during this period.
TC PipeLines, LP TCP is a midstream energy firm operating in the United States. The Zacks Rank #2 partnership outpaced earnings estimates thrice in the trailing four quarters, with an average positive surprise of 12.6%.
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