Unveiling Holly Energy Partners LP (HEP)'s True Worth: Is It Really Priced Right? A ...
Holly Energy Partners LP (NYSE:HEP) recorded a daily gain of 2.94% and a 3-month gain of 27.8% with an Earnings Per Share (EPS) of 1.72. However, the question remains: is the stock significantly overvalued? This article provides an in-depth valuation analysis of Holly Energy Partners LP (NYSE:HEP).
Company Introduction
Holly Energy Partners LP operates a network of refined products and crude oil pipelines, with attendant terminal assets, in several western and southwestern states. It has two reportable segments, namely Pipelines and Terminals and Refinery Processing Unit, with the former generating maximum revenue. Despite a current stock price of $23.1, the GF Value, an estimation of fair value, stands at $17.43, suggesting that the stock may be significantly overvalued.
Understanding the GF Value
The GF Value represents the intrinsic value of a stock, calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of business performance. The GF Value Line gives an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given its current price of $23.1 per share, Holly Energy Partners LP stock appears significantly overvalued. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Holly Energy Partners LP's cash-to-debt ratio of 0.01 ranks worse than 95.3% of 1021 companies in the Oil & Gas industry, suggesting a poor balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk. Holly Energy Partners LP has been profitable 10 years over the past 10 years, with an operating margin of 41.17%, better than 83.35% of companies in the Oil & Gas industry. However, its 3-year average revenue growth rate is worse than 76.35% of companies in the Oil & Gas industry, and its 3-year average EBITDA growth rate is -4.4%, ranking worse than 73.66% of companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can also provide insights into its profitability. Holly Energy Partners LP's ROIC is 8.85, while its WACC is 8.21, suggesting the company is likely creating value for its shareholders.
Conclusion
In conclusion, Holly Energy Partners LP (NYSE:HEP) stock appears significantly overvalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 73.66% of companies in the Oil & Gas industry. To learn more about Holly Energy Partners LP stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
