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HollyFrontier (HFC) to Buy Sonneborn, Rev Up Lubricants Unit

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In a bid to bolster the Lubricants and Specialty Products business, HollyFrontier Corporation HFC recently inked a $655 million all-cash deal to acquire Sonneborn. Subject to satisfactory closing conditions and regulatory approvals, the deal is set for closure in 2019.

Notably, privately-held Sonneborn is one of the leading providers of specialty hydrocarbon products like white oils, waxes and petrolatums. With manufacturing facilities across Europe and North America, the specialty hydrocarbons maker supplies its products to many cosmetic and personal care companies, along with food processing as well as pharmaceutical firms.

The asset base of Sonneborn nicely complements the Dallas-based refiner’s Lubricants and Specialty unit, and is in turn expected to make HollyFrontier a leading global supplier of specialty products post the acquisition. The acquisition will help the company to capitalize on Sonneborn’s diversified portfolio and brand power, as well as enable both the companies to pool their expertise and share their best practices.

Notably, the Petro-Canada Lubricants acquisition of 2017 helped HollyFrontier to expand into the high-margin, less competitive business of producing specialty lubricants. The deal was a smart one as it allowed the company to inherit a strong brand portfolio with growing market demand, while being immediately accretive to its earnings and cash flow. This July, the company also inked a deal to expand the lubricants business by acquiring a private lubricants firm, Red Giant Oil Company. The buyout will add $7.5 million of annual earnings to HollyFrontier’s profits.

With the acquisition of Sonneborn, the independent petroleum refiner will take the lubricants and specialty business a notch higher, increasing shareholder value and boosting the company’s growth prospects. 

Along with expanding HollyFrontier’s geographical footprint by adding the specialty manufacturing business in Pennsylvania and Netherlands, the strategic acquisition is expected to lead to significant commercial, financial and operational synergies due to the integration of assets, systems, as well as staff. The deal is expected to result in annual savings of around $20 million in logistics and operations. The buyout is further expected to be immediately accretive to HollyFrontier’s earnings and cash flow.

HollyFrontier currently carries a Zacks Rank #3 (Hold). The company’s refining segment, which is a major contributor to its earnings, delivered strong results on the back of wider gross margins in the last reported quarter. Over a year, shares of HollyFrontier have rallied 42%, handily outperforming the stocks in the industry that have cumulatively gained just 4.9%. However, increasing costs of the company along with raised capex budget are causes of concern.

 


 

Some better-ranked players in the energy sector include Bonanza Creek Energy, Inc. BCEI, Hess Corporation HES and Murphy Oil Corporation MUR. While Bonanza Creek and Hess currently sport a Zacks Rank #1 (Strong Buy), Murphy Oil carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bonanza Creek delivered average positive earnings surprise of 12.93% in the last four reported quarters.

Hess pulled off average positive earnings surprise of 230.48% in the trailing four reported quarters.

Murphy Oil recorded a positive earnings surprise in each of the trailing four quarters, with average beat of 76.16%.

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