Why Is HollyFrontier (HFC) Down 8.3% Since Last Earnings Report?

A month has gone by since the last earnings report for HollyFrontier (HFC). Shares have lost about 8.3% 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 Q3 Earnings Top on Higher Refining Margins

HollyFrontier reported third-quarter 2018 net income per share (excluding special items) of $1.98, beating the Zacks Consensus Estimate of $1.63 and ahead of the year-ago period profit of $1.14 thanks to improving refining margins.

Revenues of $4.8 billion surpassed the Zacks Consensus Estimate of $4.5 billion and climbed 28.3% from the third-quarter 2017 sales of $3.7 billion.

Segmental Information

Refining: Adjusted EBITDA from the Refining segment, which is the main contributor to HollyFrontier’s earnings, was $507.2 million. This reflected a healthy improvement from the year-ago quarter’s income of $326.4 million, thanks to wider gross margins, which jumped 38% to $19.41 per barrel.

Total refined product sales volumes averaged 447,770 barrels per day (bpd), down 3.4% from 463,750 bpd in the year-ago quarter as an outage forced the company’s Woods Cross plant to run at lower rates throughout the first two months of the quarter. Downtime as part of planned turnaround at El Dorado facility also impacted volumes. Moreover, throughput decreased from 485,780 bpd in the year-ago quarter to 470,560 bpd. Meanwhile, capacity utilization was 96.7%, down from 99.5% in third-quarter 2017.

Lubricants and Specialty Products: The segment EBITDA totaled $42.3 million, lower than $53.7 million reported in the year-ago quarter on base oil market weakness. Product sales averaged 31,970 bpd, increasing from the prior-year level of 30,440 bpd. However, throughput fell 4.2% year over year to 21,410 bpd in the reported quarter.

HEP: This unit includes HollyFrontier’s 57% interest in Holly Energy Partners L.P. (HEP - Free Report)    , a publicly-traded master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets.

Segment EBITDA was $86.9 million, up from $75 million in third-quarter 2017. Earnings were buoyed by higher volume growth in its Permian crude gathering system, along with the buyouts of SLC and Frontier pipelines.

Balance Sheet

As of Sep 30, 2018, HollyFrontier 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 26.8%.

During the quarter, the company paid $58.4 million in dividends and bought back shares worth $124 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 20.56% due to these changes.

VGM Scores

Currently, HollyFrontier has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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 upward for the stock, and the magnitude of these revisions looks promising. 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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