On Wednesday, Citi reaffirmed its Buy rating on Delek Logistics Partners, LP (NYSE:DKL) with a consistent price target of $45.00. The firm's projections for the third quarter of 2024 anticipate an EBITDA of $102 million, expecting results to remain roughly the same as the previous quarter. The recent acquisitions are predicted to provide positive momentum, balanced by the costs associated with recontracting and transaction fees.
The fourth quarter of 2024 is expected to show a significant improvement, as Delek Logistics will fully account for its acquisition of H2O Midstream for the first time. Analysts are keenly awaiting updates on several fronts during the upcoming quarter. Key areas of interest include the progress of strategic initiatives announced in the previous quarter, particularly the integration of H2O Midstream.
Additionally, Delek Logistics recently disclosed a new acreage dedication in the Midland region, which may bring further details about minimum volume commitments (MVCs) and future expectations.
The distribution for this quarter is also under scrutiny, with the possibility of an increase being the base case scenario. However, the firm acknowledges that a stable distribution could be considered if the Board feels that the equity market does not fully value the growth in distribution, especially given the current yield of around 10%.
In other recent news, Delek Logistics Partners reported record second-quarter earnings with an adjusted EBITDA of $102.4 million. The company has announced several strategic transactions, including an extended contract with DK, an investment in a new gas processing plant, and the acquisition of H2O Midstream. These moves are aimed at strengthening Delek Logistics' market position in the Permian Basin.
Citi has upgraded its rating on Delek Logistics from Neutral to Buy, citing an improved outlook and high yield potential. The upgrade follows strategic updates that Citi believes have not been fully appreciated by the market. The firm also raised the price target to $45 from the previous $44.
The Board of Directors has approved an increase in the quarterly distribution to $1.09 per unit, reflecting Delek Logistics' strong performance. The company's leverage has improved, with a ratio of 3.81 times at the end of the quarter, down from 4.84 at the end of 2022. Looking ahead, the majority of Delek Logistics' EBITDA is projected to come from non-related parties by the first half of 2025, making it a mostly independent midstream company.
InvestingPro Insights
Delek Logistics Partners, LP (NYSE:DKL) continues to demonstrate strong financial performance, aligning with Citi's bullish outlook. According to InvestingPro data, the company boasts a robust dividend yield of 9.95%, which supports Citi's observation of the current yield being around 10%. This high yield is further reinforced by an InvestingPro Tip indicating that DKL "pays a significant dividend to shareholders."
The company's financial health is evident in its P/E ratio of 14.9, suggesting a reasonable valuation relative to earnings. This metric is particularly relevant given Citi's expectations for stable EBITDA in the upcoming quarter and significant improvements in Q4 2024.
Another InvestingPro Tip highlights that DKL "has raised its dividend for 11 consecutive years," which aligns with the article's discussion on potential distribution increases. This track record of consistent dividend growth may provide investors with confidence in the company's ability to maintain or potentially increase distributions, as mentioned in the article.
For readers interested in a more comprehensive analysis, InvestingPro offers 6 additional tips that could provide further insights into Delek Logistics Partners' financial position and market performance.
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