Oil Refining Sees Cash Flow Surge In Q2: 5 Stocks In Focus

We have closed the book for the Q2 earnings season with releases from all S&P 500 Oil/ Energy companies already out. From our article, it is clear that the Energy sector contributed the most to year-over-year earnings growth in the S&P 500 Index.

Among the major industries in the Energy sector, we found Q2 performances of the Oil Refining & Marketing industry the most impressive. The refining industry generated huge cash flow from core operations for investors in second-quarter 2017. Also, the industry’s dividend yield is higher than that of the S&P 500 Index. Thus, it is a good time to consider stocks from the oil refining industry.

Oil Refining Industry

This industry mainly deals in downstream operations. Companies belonging to this space have plants that help refine raw crude to produce end products like gasoline, heating oils and diesel. In other words, refining companies buy raw crude from the exploration and production players and sell the refined products.

The industry has a good industry rank and is undervalued as compared to the S&P 500 index.

Industry Rank

In terms of Zacks Industry Rank,Oil Refining Industry is among the top performing industries.

The industry is ranked #100 and lies in the top 39% of industries. The industry rank is impressive as the top 50% of the Zacks Ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Undervalued as Compared to S&P 500

Compared to the S&P 500, the Oil Refining Industry is undervalued. This implies that the industry has more potential to grow in the near future compared to the index. The Oil Refining industry has a trailing 12-month EV/EBITDA ratio of 8.57, which is below the index’s mark of 10.69. The EV/EBITDA ratio is one of the best multiples for valuing oil and gas companies because energy firms have a large amount of debt and EV (Enterprise Value) has included the parameter.

Terrific Q2 Performance

With the help of our proprietary model, we picked up key parameters that highlighted the terrific performance of the Oil Refining Industry during the second quarter of this year.

Beats S&P 500

The performance of any stock or industry over a specified period of time gets reflected in the pricing chart. The April-to-June quarter has clearly shown that the Oil Refining & Marketing industry has surpassed the S&P 500 Index.

During the aforesaid period, the industry has gained 4.4% as compared with the 2.8% improvement of the index. We are highlighting the positive price movement of the Oil Refining industry as many major industries in the Oil/Energy sector have seen negative movements.

Cash Flow & Earnings Skyrocket

During second-quarter 2017, net cash flow from operations from the Oil Refining industry jumped more than 200% sequentially to $973 million. In other words, the industry saw a marked improvement in cash flow in Q2 from the decline in Q1.

On top of that, earnings out of core operations – as measured by earnings before income, tax, depreciation and amortization (EBITDA) – was registered at $776 million, highlighting almost 60% improvement from the prior quarter.

Lucrative Dividend Yield for Q2

Along with improved earnings, the Oil Refining industry also recorded a lucrative dividend yield which outpaced the S&P 500 Index.

During the April-to-June quarter of this year, the industry reported dividend yield of 3.35%, which is far better than 1.9% yield of the S&P 500 Index.

Refining Stocks in Focus

Picking the prospective energy stocks can be a daunting task. To simplify the screening process, we have resorted to our proprietary stock screener. We have primarily picked stocks that have beaten the Zacks Consensus Estimate in the last reported quarter.

Headquartered in San Antonio, TX, Andeavor (NYSE:ANDV) is involved in the refining and marketing of refined products. The retail marketing business of the company has almost 3,100 stores under renowned fuel brands. Andeavor carries a Zacks Rank #3 (Hold).

During second-quarter 2017, Andeavor reported earnings of $1.96 per share, beating the Zacks Consensus Estimate of $1.61. Higher refinery throughput and improved performance from the marketing and logistics segment drove Q2 numbers. On top of that, the company posted an average positive earnings surprise of 38.94% over the last four quarters.

Based in Houston, TX, Phillips 66 (NYSE:PSX) – with a Zacks Rank #3 – is a diversified energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses.

Phillips reported earnings of $1.09 per share during the second quarter that surpassed the Zacks Consensus Estimate of $1.02. The improvement can be attributed to higher refining utilization. Moreover, for the last four quarters, the company posted an average positive earnings surprise of 433.14%.

Par Pacific Holdings Inc. (NYSE:PARR) – headquartered in Houston, TX – has refining operations that include production of ultra-low sulfur diesel, jet fuel and related refined products. In the second quarter, the company posted earnings of 24 cents, beating the Zacks Consensus Estimate of 22 cents. Par Pacific outpaced the Zacks Consensus Estimate in three of the last four quarters, with an average positive earnings surprise of 195.26%.

The company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

San Antonio, TX-based Valero Energy Corporation (NYSE:VLO) is the largest independent refiner and marketer of petroleum products in the U.S.

The company posted adjusted second-quarter 2017 income of $1.23 per share that surpassed the Zacks Consensus Estimate of $1.08 and the year-ago adjusted profit of $1.08. Higher throughput margin due to 96% throughput capacity utilization supported the numbers. Most importantly, the company – with a Zacks Rank #3 – beat the Zacks Consensus Estimate in each of the last four quarters.

Dallas, TX-based HollyFrontier Corporation (NYSE:HFC) is one of the largest independent refiners and marketers of petroleum products in the U.S. The refiner carries a Zacks Rank #3.

The company’s net income per share (excluding special items) came in at 66 cents, handily beating the Zacks Consensus Estimate of 46 cents and significantly ahead of the year-ago 28 cents. The improvement was driven by improving refining margins.

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