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HollyFrontier (HFC) Down 5.3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for HollyFrontier (HFC). Shares have lost about 5.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HollyFrontier due for a breakout? 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 Q4 Earnings Top, Revenues Miss

HollyFrontier reported fourth-quarter 2018 net income per share (excluding special items) of $2.25, beating the Zacks Consensus Estimate of $1.99 and also exceeding the year-ago level of 70 cents, thanks to improving refining margins.
 
HollyFrontier generated revenues of $4.3 billion, which missed the consensus mark of $5.9 billion but were ahead of fourth-quarter 2017 sales of $4 billion.

Segmental Information
 
Refining: Adjusted EBITDA from the Refining segment, which is the main contributor to HollyFrontier’s earnings, was $583.4 million. This reflected a healthy improvement from the year-ago income of $233.1 million, thanks to wider gross margins, which jumped 76.7% to $22.17 per barrel.
 
Total refined product sales volumes averaged 443,670 barrels per day (bpd), down 8% from 482,860 bpd in the year-ago quarter amid lower volumes from the Mid-Continent region that accounts for a bulk of the company’s total throughput. Throughput decreased from 497,450 bpd in the year-ago quarter to 440,670 bpd. Meanwhile, capacity utilization was 88.7%, down from 100.9% in fourth-quarter 2017. Planned turnaround at El Dorado facility impacted throughput levels and refinery utilization.

Lubricants and Specialty Products: The segment recorded a negative EBITDA of $3.9 million against $40.5-million profit reported in the year-ago quarter, owing to continued weakness in base oil market and turnaround activities in the Mississauga plant in the quarterunderreview. Product sales averaged 27,550 bpd, decreasing from the prior-year level of 29,670 bpd. Throughput fell20% year over year to 16,790 bpd in the reported quarter.
 
HEP: This unit includes HollyFrontier’s 57% interest in Holly Energy Partners L.P. (HEP), which is a publicly-traded master limited partnership that owns, operates, develops and acquires pipelines, as well as other midstream assets.
 
Segment EBITDA was $89.9 million, down from $124.6 million in the prior-year period amid lower volumes from the UNEV pipeline and maintenance downtime at Woods Cross during the quarter.  
 
Balance Sheet
 
As of Dec 31, 2018, the U.S. refiner had approximately $1.1 billion in cash and cash equivalents, and $2.4 billion in net long-term debt, representing a debt-to-capitalization ratio of 27.3%.
 
During the quarter, the company paid $57.6 million in dividends and bought back shares worth $185.2 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -32.97% due to these changes.

VGM Scores

Currently, HollyFrontier has a great Growth Score of A, 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 20% 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. Notably, HollyFrontier has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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