On Friday, Piper Sandler, a financial services firm, adjusted its price target for HF Sinclair (NYSE: DINO), a U.S. refining company, raising it to $70 from the previous $67, while maintaining an Overweight rating on the stock. The adjustment reflects a more optimistic assessment of the company's potential earnings power.
The update from Piper Sandler comes amid inquiries about the current valuations of refining stocks, particularly whether they are factoring in another year of high margins into 2025. Contrary to this assumption, the firm believes that these stocks are still relatively undervalued when considering a longer-term perspective.
In evaluating the mid-cycle earnings power, or EBITDA, for U.S. refiners, Piper Sandler suggests that the current stock prices are largely accounting for the anticipated mid-cycle EBITDAs for the year 2025, after considering the effects of ongoing share buybacks. Among smaller and midsize companies, HF Sinclair and PBF Energy (NYSE:PBF) are perceived as offering the most significant discounts, while Phillips 66 (NYSE:PSX) and Valero Energy (NYSE:VLO) are seen as having the most long-term upside among the larger players.
Despite the recent positive performance of stocks in this sector and a cautious shift in both market and analyst sentiment due to seasonal trends, Piper Sandler has increased its price targets for a number of refining companies. This includes Marathon Petroleum (NYSE:MPC), now with a target of $204, Par Pacific Holdings (NYSE:PARR) at $47, PBF Energy at $61, and Phillips 66 with a new target of $187.
The firm's revised price targets across the group are based on an expectation of higher medium-term earnings power for these companies. This suggests a belief in the continued financial growth and profitability potential within the refining industry, despite the current cautious stance on the market.
InvestingPro Insights
Piper Sandler's optimistic outlook on HF Sinclair is echoed by some of the metrics and activities observed in the company's recent performance. HF Sinclair has demonstrated a commitment to enhancing shareholder value, as evidenced by its aggressive share buyback program. This reflects strong confidence from management in the company's valuation and future prospects. Additionally, the company's long history of maintaining dividend payments, with 37 consecutive years of payouts, provides a testament to its financial stability and reliability for income-focused investors.
On the financial front, HF Sinclair boasts a P/E ratio of 6.73, indicating that the stock may be undervalued relative to its earnings, especially when compared to the adjusted P/E ratio for the last twelve months as of Q4 2023, which stands at 7.83. The company's market cap is currently at $12.4 billion, and while it has experienced a revenue decline over the last twelve months, it still maintains a robust gross profit margin of 10.86%. Moreover, the stock has been trading near its 52-week high, showing strong market confidence with significant returns over the last month and quarter.
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