HollyFrontier (HFC) Down 47.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for HollyFrontier (HFC). Shares have lost about 47.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HollyFrontier 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 catalysts.

HollyFrontier Q4 Earnings Miss on Weak Refining Margins

HollyFrontier Corp. reported fourth-quarter 2019 net income per share (excluding special items) of 48 cents per share, missing the Zacks Consensus Estimate of 50 cents. This weak performance stemmed from lower contribution from the Refining segment. Moreover, the bottom line is 78.6% lower than the year-ago adjusted earnings of $2.25.

However, revenues of $4.38 billion surpassed the Zacks Consensus Estimate of $3.81 billion and also inched up 0.85% from the fourth-quarter 2018 sales of $4.34 billion owing to improved product sales at the Lubricants and Specialty Products segment.

Segmental Information

Refining: Adjusted EBITDA from the Refining segment — the main contributor to HollyFrontier’s earnings — was $171.56 million, plunging 71% from the year-ago quarterly income of $583.4 million due to lower product margins, which declined 39% to $13.58 per barrel.

Total refined product sales volumes averaged 418,800 barrels per day (bpd), down 5.6% from 443,670 bpd in the year-ago quarter. Moreover, throughput decreased from 440,550 bpd in the year-ago quarter to 408,730 bpd. The same also missed the Zacks Consensus Estimate of 413,000 bpd. Further, capacity utilization was 83.3%, down from 88.7% in fourth-quarter 2018.

Lubricants and Specialty Products: The segment recorded an EBITDA of $34.6 million in the quarter under review against a negative EBITDA of $3.5 million in the year-ago period, courtesy of the contributions from the company’s Sonneborn finished lubricants business. Moreover, product sales averaged 34,392 bpd, up from the prior-year level of 27,550 bpd. Further, throughput rose 26.4% year over year to 21,229 bpd in the reported quarter from 16,790 in the prior year.

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 $87.8 million, down 2.33% from $89.9 million in fourth-quarter 2018.

Balance Sheet

U.S. refiner HollyFrontier’s total capital expenditure was $98.7 million in the fourth quarter. As of Dec 31, 2019, the company had approximately $885.2 million in cash and cash equivalents and $2.4 billion in long-term debt, representing a debt-to-capitalization ratio of 27.4%.

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 revision. The consensus estimate has shifted -30.62% due to these changes.

VGM Scores

At this time, HollyFrontier has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 #5 (Strong Sell). We expect a below average return from the stock in the next few months.