Tuesday, Piper Sandler adjusted its stance on PBF Energy (NYSE: NYSE:PBF), reducing the stock's price target to $54 from $61, while maintaining a Neutral rating on the shares. The firm's analyst cited regional trends as a significant factor, noting that West Coast margins, especially those in San Francisco, are outperforming, with a notable increase compared to Los Angeles.
This trend is seen as potentially beneficial to PBF Energy and Valero Energy Corporation (NYSE: NYSE:VLO), with both companies showing less downside risk to their second-quarter estimates compared to others in the sector.
The analyst pointed out that PBF Energy and Valero Energy are better positioned than competitors who are facing headwinds from the narrowing Western Canadian Select (WCS) differential, which has tightened by approximately $1.37 per barrel further into the second quarter.
The analyst's price target is derived from a sum-of-the-parts (SOTP) valuation framework based on the fiscal years 2024 and 2025. This approach includes a blended forward-looking enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 3.75x for refining and corporate segments.
PBF Energy's assets in the underlying master limited partnership (MLP) are valued at current market prices, according to the analyst. Additionally, adjustments are made for non-recourse net debt in the valuation. This reevaluation of the company's price target reflects the current market dynamics and the firm's assessment of PBF Energy's financial outlook.
The analyst's comments also suggest that while there is no strong call on the overall group of refining companies, there are specific regional trends that could provide relative opportunities for certain players. PBF Energy, with its exposure to the favorable West Coast margin environment, is highlighted as one of the companies that could potentially see upside if these regional strengths persist.
InvestingPro Insights
As Piper Sandler revises PBF Energy's price target, it's worthwhile to consider additional factors that could influence the company's stock performance. According to InvestingPro data, PBF Energy has a market capitalization of $5.73 billion and is trading at a low price-to-earnings (P/E) ratio of 3.16, suggesting that the stock might be undervalued compared to earnings. Despite a revenue decline over the last twelve months as of Q1 2024, PBF's gross profit margin stands at 6.9%, indicating some level of profitability in its operations.
Two InvestingPro Tips highlight key aspects for potential investors: PBF management's aggressive share buybacks could signal confidence in the company's value, while the Relative Strength Index (RSI) suggests the stock is currently in oversold territory, potentially offering a buying opportunity for contrarian investors. Furthermore, with analysts predicting the company will be profitable this year, these insights could provide a more nuanced view of PBF Energy's investment potential.
For those looking for more in-depth analysis, InvestingPro offers additional tips on PBF Energy, which can be accessed by visiting https://www.investing.com/pro/PBF. Subscribers can use coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking more data and insights to inform their investment decisions. There are currently 11 more InvestingPro Tips available for PBF Energy, offering a comprehensive outlook on the company's financial health and market position.
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