It has been about a month since the last earnings report for Delek US Holdings (DK - Free Report) . Shares have lost about 0.8% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Delek US Holdings due for a breakout? 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.
Delek Q3 Earnings Beat on Midland Discount
Delek US Holdings reported third-quarter adjusted net income per share of $2.02, ahead of the Zacks Consensus Estimate of $1.99 and the comparable 2017 period profit of 77 cents on robust Refining segment results.
With 70% of the downstream operator’s refining capacity leveraged to lower Permian pricing, the company benefited from the favorable crude differentials, which averaged $10.40 per barrel in the third quarter.
However, Delek US Holding’s net sales of $2.5 billion came below the Zacks Consensus Estimate of $3 billion on lower crack spreads. Revenues increased 5.3% year over year.
The company reported expenses of $136.4 million during the quarter, up from the $126.7 million incurred in the year-ago period.
Delek also announced a 4% increase to its quarterly dividend, to 26 cents from 25 cents. The company authorized a stock buyback of $500 million and expects to repurchase $150 million of its common stock in the fourth quarter.
Refining: Margin from the Refining segment was $319.5 million compared with $180.1 million in the year-ago quarter. The improvement reflects, wider Midland discount versus Cushing (on continued congestion in the Permian Basin) and lower RIN costs, partly offset by narrowing crack spreads.
Logistics: This unit includes Delek US Holding’s 63% interest in Delek Logistics Partners, L.P., a publicly-traded master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets. Margin from the Logistics unit totaled $43.1 million, up 39.5% from the year-ago period. The segment results were impacted by contribution from the drop down of the Big Spring refinery logistics properties, better gross margin per barrel in west Texas and improved performance from the Paline Pipeline. These factors were partly offset by increase in operating expenses.
Retail: Margin for the unit – which came into being following the acquisition of Alon USA Energy, Inc. last year – was up by 13.3% to $15.3 million on higher fuel margins. Delek sold retail fuels at an average margin of 23 cents per gallon, compared with 20 cents per gallon in the year-ago period. UPS Freight Workers Negotiate with Management to Avoid Strike
Capital Expenditure, Balance Sheet & Share Repurchase
In the reported quarter, Delek spent $86.1 million on capital programs (59% on the Refining segment). As of Sep 30, 2018, the company had cash and cash equivalents of $1.1 billion and long-term debt of $1.8 billion, with a debt-to-capitalization ratio of 49.1%. During the quarter under review, Delek returned $113 million of capital to shareholders, including $92.1 million of share repurchases.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -11.93% due to these changes.
At this time, Delek US Holdings has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Delek US Holdings has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.