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Par Pacific Is Now Undervalued: Is It a Strong Entry Point?

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Key Takeaways

  • Par Pacific trades at 1.99x EV/EBITDA versus the industry's 4.50x, signaling an attractive valuation.
  • Diverse crude sourcing, including cheaper Canadian heavy oil, gives PARR a cost advantage in refining.
  • Tight fuel supplies and strong demand favor PARR, though its 58.4% annual gain trails the industry's 86.6%.

Par Pacific Holdings Inc. (PARR - Free Report) is trading at 1.99x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a discount compared with the broader industry average of 4.50x. Valero Energy Corporation (VLO - Free Report) and Phillips 66 (PSX - Free Report) are valued at 4.52x and 6.98x, respectively.

Zacks Investment Research Image Source: Zacks Investment Research

PARR is now undervalued, but should investors dive in? Before concluding, one should explore the ongoing refining business landscape and the overall business outlook.

PARR’s Crude Sourcing Advantage Supports Refining Economics

Instead of relying on a single source of crude, PARR has been depending on crude from a variety of sources, comprising U.S. inland oil fields, waterborne sources and Canadian heavy crude.

Notably, a significant portion of crude oil sources is waterborne, while 21% consists of Canadian heavy oil. While exposed to multiple sources, Par Pacific has the option to switch if the price of one crude oil type rises.

Par Pacific Holdings Inc Image Source: Par Pacific Holdings Inc

Because it has exposure to Canadian heavy oil, which is cheaper than lighter crude, Par Pacific is likely enjoying a cost advantage. In other words, the refining player has been capable of using lower-priced fuel to produce high-value end products, giving it an edge over other refiners and helping continue THE upward trajectory.

Par Pacific’s Bright Refining Business Outlook

Par Pacific’s refining business outlook remains bright. In the third-quarter earnings transcript, the company mentioned that the demand for refined products like gasoline, diesel and jet fuel is handsome when the supply remains tight – thanks to decreased refinery production in Asia, along with shrunken fuel exports from the Persian Gulf and Russia.  

The company is also gaining from the close proximity to the markets it is serving, especially when the shipping costs get higher for overseas refiners who are transporting fuel to distant markets.

Should Investors Bet on the Stock?

All the positive developments are yet to be reflected in the price chart, as over the past year PARR gained 58.4%, underperforming the industry’s 86.6% improvement. PSX and VLO jumped 82.5% and 99.1%, respectively, over the same time span.

Zacks Investment Research Image Source: Zacks Investment Research

Given the backdrop, it would be ideal to make an entry into an undervalued stock like PARR when the business outlook looks outstanding. Currently, the stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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