These are the best of times for HollyFrontier Corporation (HFC - Snapshot Report) as favorable crude spreads recently led to the most profitable quarter in its history. This Zacks #1 Rank (strong buy) is also dirt cheap at just 7.8x forward estimates.
HollyFrontier is an independent oil refiner that produces gasoline, diesel fuel, and jet fuel.
It operates 5 refineries and sells its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and including other neighboring Plains states.
Gross Margins Soar in the Second Quarter on WTI Discount
On Aug 5, HollyFrontier reported its second quarter results and surprised on the Zacks Consensus by 9.2%. Earnings per share were a record $3.58 compared to the consensus of $3.28 per share. It made just $1.24 in the same quarter a year ago.
The results were boosted by the effects of significantly higher refinery gross margins due to the nearly record price differential between WTI crude oil and Brent and LLS oils.
Refinery gross margins jumped 95% to $21.42 per produced barrel from $11.01 in the same quarter last year.
Refinery production levels also improved in the quarter to total production over 250,000 BPD and those levels continued into the third quarter.
Revenue rose 38% to $3 billion. The company also had $1.3 billion in cash at the end of the quarter.
EPS Expected To Grow 370% in 2011
Given the high gross margins, analysts expect the company to grow earnings by 370% compared with 2010.
The 2011 Zacks Consensus Estimate jumped to $9.08 from $7.89 in the last month as 5 estimates moved higher in that time.
The company made only $1.94 in 2010.
HollyFrontier Is a Cheap Stock
It isn't common to find a stock that is as cheap as HollyFrontier and that also has massive earnings growth.
In addition to a P/E under 8.0, the company's price-to-book ratio is 2.4. A P/B ratio under 3.0 usually indicates value.
HollyFrontier also has an extremely low price-to-sales ratio of 0.4. This is a good sign for value investors as a P/S ratio under 1.0 usually indicates a company is undervalued.
Share Pullback: A Buying Opportunity
The recent stock market sell off created a buying opportunity in the shares as you can see from the 6-month chart.
HollyFrontier is a dirt cheap stock with tremendous 2011 earnings growth potential.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.