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HollyFrontier (HFC) Up 29.9% Since Last Earnings Report: Can It Continue?

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Zacks Equity Research
·5 min read
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It has been about a month since the last earnings report for HollyFrontier (HFC). Shares have added about 29.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is HollyFrontier due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

HollyFrontier Q1 Earnings Top on Robust Product Sales

HollyFrontier Corp. reported first-quarter 2020 net income per share (excluding special items) of 53 cents per share, beating the Zacks Consensus Estimate of 44 cents. This outperformance stemmed from improved product sales at the Lubricants and Specialty Products segment and higher-than-expected refinery throughput.

However, the bottom fell marginally from the year-ago adjusted earnings of 54 cents due to weaker refinery gross margins.

Revenues of $3.4 billion fell shy of the Zacks Consensus Estimate of $3.79 billion and also dropped 12.8% from the first-quarter 2019 sales of $3.9 billion.

Segmental Information

Refining: Adjusted EBITDA from the Refining segment, the main contributor to HollyFrontier’s earnings, was $175.9 million, down 9% from the year-ago quarterly income of $193.4 million. This downside is due to lower product margins and increased laid-in crude costs resulting in a consolidated refinery gross margin of $11.32 per produced barrel. The figure reflects an 11% decline from $12.74 in the first quarter of 2019.

Total refined product sales volumes averaged 452,290 barrels per day (bpd), up 6.9% from 423,030 bpd in the year-ago quarter. Moreover, throughput rose from 433,720 bpd in the year-ago quarter to 471,560 bpd. The same also outpaced the Zacks Consensus Estimate of 464,000 bpd. Further, capacity utilization was 95.5%, up from 87.6% in first-quarter 2019.

Lubricants and Specialty Products: The segment recorded an EBITDA worth $32.3 million in the quarter under review, skyrocketing 188% from $11.2 million in the year-ago period. Moreover, product sales averaged 36,800 bpd, up from the prior-year level of 34,770 bpd. Further, throughput improved 9.8% year over year to 21,750 bpd in the reported quarter from 19,800 in the prior-year period.

HEP: This unit includes HollyFrontier’s 57% interest in Holly Energy Partners L.P., a publicly-traded master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets. Segmental EBITDA was $64.4 million, down 31% from $93.5 million in first-quarter 2019.

Balance Sheet

U.S. refiner HollyFrontier’s total capital expenditure was $83.7 million in the first quarter. As of Mar 31, 2020, the company had approximately $909 million in cash and cash equivalents and $2.5 billion in long-term debt, representing a debt-to-capitalization of 29%.

The company paid out $57.2 million in dividends during the quarter and bought back shares worth $61.1 million.


 

However, the bottom fell marginally from the year-ago adjusted earnings of 54 cents due to weaker refinery gross margins.

 

Revenues of $3.4 billion fell shy of the Zacks Consensus Estimate of $3.79 billion and also dropped 12.8% from the first-quarter 2019 sales of $3.9 billion.

 

Segmental Information

 

Refining: Adjusted EBITDA from the Refining segment, the main contributor to HollyFrontier’s earnings, was $175.9 million, down 9% from the year-ago quarterly income of $193.4 million. This downside is due to lower product margins and increased laid-in crude costs resulting in a consolidated refinery gross margin of $11.32 per produced barrel. The figure reflects an 11% decline from $12.74 in the first quarter of 2019.

 

Total refined product sales volumes averaged 452,290 barrels per day (bpd), up 6.9% from 423,030 bpd in the year-ago quarter. Moreover, throughput rose from 433,720 bpd in the year-ago quarter to 471,560 bpd. The same also outpaced the Zacks Consensus Estimate of 464,000 bpd. Further, capacity utilization was 95.5%, up from 87.6% in first-quarter 2019.

 

Lubricants and Specialty Products: The segment recorded an EBITDA worth $32.3 million in the quarter under review, skyrocketing 188% from $11.2 million in the year-ago period. Moreover, product sales averaged 36,800 bpd, up from the prior-year level of 34,770 bpd. Further, throughput improved 9.8% year over year to 21,750 bpd in the reported quarter from 19,800 in the prior-year period.

 

HEP: This unit includes HollyFrontier’s 57% interest in Holly Energy Partners L.P. (HEP), a publicly-traded master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets. Segmental EBITDA was $64.4 million, down 31% from $93.5 million in first-quarter 2019.

 

Balance Sheet

 

U.S. refiner HollyFrontier’s total capital expenditure was $83.7 million in the first quarter. As of Mar 31, 2020, the company had approximately $909 million in cash and cash equivalents and $2.5 billion in long-term debt, representing a debt-to-capitalization of 29%.

 

The company paid out $57.2 million in dividends during the quarter and bought back shares worth $61.1 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted 11.16% due to these changes.

VGM Scores

Currently, HollyFrontier has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise HollyFrontier has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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