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Anatomy of Success: Delek US Holdings (DK)

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Identifying which stocks are best positioned to see big returns is no doubt a daunting task, but if you utilize a tool like the Zacks Rank, it becomes much easier, and much more profitable.

Stocks with a Zacks Rank #1 (Strong Buy) title have a long history of outperforming the markets over a one-to-three-month time period; only 5% of the Zacks Rank universe receives this unique grade. Not only does this ranking system help identify the most elite stocks, but it also helps you hold a particular company while it continues to gain in value beyond that three-month investment horizon.

The example blow illustrates how investors could have used this methodology to discover a company that was on the verge of seeing accelerated price appreciation. And by following the Zacks Rank, they could have stayed in the stock while it beat and raised estimates for three out of the last four quarters.

Delek US Holdings (DK - Free Report)

Delek is a diversified energy business that is focused on petroleum refining, marketing, and supply of refined products, as well as the retail marketing of fuel and general merchandise. Founded in 2001, Delek has one of the largest exposure to the Permian Basin of any independent refiner and anticipates annual synergies between $85 million to $105 million in 2018.

Going into its first-quarter fiscal 2017 earnings report, DK was a Zacks Rank #3 (Hold). Delek surged past both top and bottom line estimates, with earnings surpsring by almost 150%. Improved results were primarily driven by an increase in its refining segment thanks to a multitude of factors. For the quarter, refining segment contribution margin was $64.4 million (compared to $23.5 million in the year ago quarter). Overall, the company saw improved drilling activity and crude oil production in the Permian Basin, which positively affected its operations.

This strong performance helped DK earn a #1 (Strong Buy) on the Zacks Rank on May 19, and the stock was able to keep this streak alive for many weeks afterwards. At the closing bell that day, shares of Delek closed at $25.36.

On December 15, DK was added to the Strong Buy list a few weeks after the company reported its third quarter results. After stumbling a bit in Q2, earnings bounced back and beat estimates. Delek closed the Alon USA transaction in July, which helped create a Permian-focused diversified downstream energy company; the company also captured annualized $53 million of synergies related to the transaction. About eight months after the company first became a #1 (Strong Buy), DK increased almost 30% to $32.54 per share.

The oil player remained at the top of the Zacks Rank until well into January and was added to the Strong Buy list again towards the end of the month. At the closing bell on January 26, shares of Delek closed at $36.22, over 42% since its first became a Strong Buy.

The company’s fourth quarter was another strong one, and earnings and revenues both beat estimates. This quarter was primarily driven by its refining segment again, and contribution margin here was $185.8 million (compared to contribution margin of $13.2 million in the prior year period). Additionally, Delek’s logistics segment contribution margin improved to $32.7 million during the quarter. It also announced a 33% increase to it regular quarterly dividend to $0.20 per share. As a result, DK was made a #1 (Strong Buy) once again on March 2.

Right now, DK is a Zacks Rank #3 (Hold), and is trading around $40 a share, up nearly 60% from when it was first made a Strong Buy Stock.

This table shows the price performance of DK (in red), as well as the 12-month forward looking EPS estimate (in green) from the time the stock first earned a Zacks Rank #1 (Strong Buy). During this stretch, DK never moved lower than a Zacks Rank #3 (Hold).

By utilizing the Zacks Rank, investors are able to easily identify elite stocks that are best positioned to beat the market on a consistent basis, and how to hold those top stocks as they continue to grow.

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