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HollyFrontier (HFC) Up 52.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for HollyFrontier (HFC - Free Report) . Shares have added about 52.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is HollyFrontier due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

HollyFrontier Q3 Loss Narrower Than Expected

HollyFrontier Corp. reported third-quarter 2020 net loss per share (excluding special items) of 41 cents, narrower than the Zacks Consensus Estimate of a loss of 54 cents. The outperformance reflects stronger-than-expected refining throughput and robust results from the Lubricants and Specialty Products division.

However, the bottom line compared unfavorably with the year-ago adjusted profit of $1.68. The underperformance mainly stemmed weak refining margins.

Revenues of $2.8 billion beat the Zacks Consensus Estimate of $2.4 billion but slumped 36.3% from the third-quarter 2019 sales of $4.4 billion.

Segmental Information

Refining: Adjusted loss from the Refining segment, which is the main contributor to HollyFrontier’s earnings, was $53.6 million. This reflected a massive plunge from the year-ago quarter’s income of $424.6 million, primarily due to sharply narrower gross margins, which was down 71% to $4.93 per barrel as steps to limit the spread of coronavirus significantly disrupted product demand. Moreover, margins came below the Zacks Consensus Estimate of $6.63 per barrel.

Total refined product sales volumes averaged 407,280 barrels per day (bpd), down 16.1% from 485,500 bpd in the year-ago quarter. Moreover, throughput decreased from 506,800 bpd in the year-ago quarter to 421,100 bpd but outpaced the Zacks Consensus Estimate of 395,000 bpd. Meanwhile, capacity utilization was 85.5%, down from 104.2% in third-quarter 2019.

Lubricants and Specialty Products: The segment EBITDA totaled $60.6 million, 59.5% higher than $38 million reported in the year-ago quarter on rebounding consumption of finished lubricants and base oils. Product sales averaged 33,560 bpd, decreasing from the prior-year level of 36,160 bpd. Further, throughput fell 18% year over year to 19,020 bpd in the reported quarter.

HEP: Segment EBITDA was $55.3 million, down from $123.1 million in third-quarter 2019. Earnings were dragged down by a goodwill impairment charge.

Balance Sheet

As of Sep 30, HollyFrontier had approximately $1.5 billion in cash and cash equivalents, and $3.2 billion in long-term debt, representing a debt-to-capitalization of 35.1%.

During the quarter, the company paid $57.2 million in dividends.


 

However, the bottom fell marginally from the year-ago adjusted earnings of 54 cents due to weaker refinery gross margins.
 
Revenues of $3.4 billion fell shy of the Zacks Consensus Estimate of $3.79 billion and also dropped 12.8% from the first-quarter 2019 sales of $3.9 billion.
 
Segmental Information
 
Refining: Adjusted EBITDA from the Refining segment, the main contributor to HollyFrontier’s earnings, was $175.9 million, down 9% from the year-ago quarterly income of $193.4 million. This downside is due to lower product margins and increased laid-in crude costs resulting in a consolidated refinery gross margin of $11.32 per produced barrel. The figure reflects an 11% decline from $12.74 in the first quarter of 2019.
 
Total refined product sales volumes averaged 452,290 barrels per day (bpd), up 6.9% from 423,030 bpd in the year-ago quarter. Moreover, throughput rose from 433,720 bpd in the year-ago quarter to 471,560 bpd. The same also outpaced the Zacks Consensus Estimate of 464,000 bpd. Further, capacity utilization was 95.5%, up from 87.6% in first-quarter 2019.
 
Lubricants and Specialty Products: The segment recorded an EBITDA worth $32.3 million in the quarter under review, skyrocketing 188% from $11.2 million in the year-ago period. Moreover, product sales averaged 36,800 bpd, up from the prior-year level of 34,770 bpd. Further, throughput improved 9.8% year over year to 21,750 bpd in the reported quarter from 19,800 in the prior-year period.
 
HEP: This unit includes HollyFrontier’s 57% interest in Holly Energy Partners L.P. (HEP), a publicly-traded master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets. Segmental EBITDA was $64.4 million, down 31% from $93.5 million in first-quarter 2019.
 
Balance Sheet
 
U.S. refiner HollyFrontier’s total capital expenditure was $83.7 million in the first quarter. As of Mar 31, 2020, the company had approximately $909 million in cash and cash equivalents and $2.5 billion in long-term debt, representing a debt-to-capitalization of 29%.
 
The company paid out $57.2 million in dividends during the quarter and bought back shares worth $61.1 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -67.88% due to these changes.

VGM Scores

At this time, HollyFrontier has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, 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 B. 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. It's no surprise HollyFrontier has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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