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HollyFrontier to Buy Red Giant Oil, Expand Lubricants Unit

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HollyFrontier Corporation (HFC - Free Report) recently inked a deal to acquire a private lubricants firm, Red Giant Oil Company. Founded in 1963, Iowa-based Red Giant Oil is one of the largest suppliers of locomotive engine oil in North America. Red Giant produces around 24 million gallons of diesel engine oil annually. The financial details of the acquisition have been kept under wraps. Subject to approvals and satisfactory closing conditions, the deal is set for closure in the third quarter of 2018.

Red Giant Oil’s buyout will significantly add value to HollyFrontier’s lubricants business, which is going strong post the acquisition of Petro-Canada lubricants business from Canadian oil and gas giant Suncor Energy Inc. (SU - Free Report) for C$1.13 billion. The Petro-Canada Lubricants acquisition of 2017 helped HollyFrontier expand into the high-margin, less competitive business of producing specialty lubricants.

The latest deal with Red Giant Oil is likely to be immediately accretive to Dallas-based HollyFrontier’s earnings and cash flow. The deal is expected to add $7.5 million in annual earnings to HollyFrontier’s profits.

The independent refiner and marketer has had an impressive run on the bourses over the past year, with shares surging 154.4%, handily outperforming the  industry’s growth of 40%.

HollyFrontier's refining strength, successful diversification of business by investing in midstream activities, along with Lubricants and Specialty Products unit have been boosting the stock’s performance. Healthy financials of the company also provide it with ample flexibility to tap on growth opportunities and resort to investor-friendly moves. As a show of confidence in its cash flow generating ability, HollyFrontier resumed planned buyback activity during the first quarter, shelling out $25.2 million in stock repurchases. The downstream operator also pays a competitive dividend, with a healthy yield.

HollyFrontier currently sports a Zacks Rank #1 (Strong Buy). The company’s strategic initiatives to enhance growth are expected to carry the momentum forward. HollyFrontier expects to achieve year-over-year growth of 162.50% for 2018 earnings. It seems to be an impressive choice for the growth investors, with an expected EPS growth rate (for the next three-five years) of 8.93%.

Other Zacks Ranked #1 players in the same industry include Delek US Holdings, Inc. (DK - Free Report) and CVR Refining, LP . You can see the complete list of today’s Zacks #1 Rank stocks here.

Delek’s 2018 earnings are expected to grow 328.57% year over year.

CVR Refining’s earnings are likely to record a year-over-year increase of 388.33% in 2018.

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