On Monday, TD Cowen adjusted its stance on Delek US Holdings, Inc. (NYSE:DK), downgrading the stock from Hold to Sell and lowering the price target to $20 from the previous $25. This new target suggests approximately a 20% downside potential for the energy company's shares.
The firm's valuation is based on a net present value (NPV) analysis of Delek's sustaining free cash flow (FCF), with 2026 envisioned as a terminal year in a mid-cycle market scenario, assuming a 10% yield on terminal FCF. Additionally, TD Cowen factored in contributions from Delek's master limited partnership (MLP) at a 10 times multiple.
TD Cowen's revised price target reflects an expectation that Delek will achieve a 65% capture rate on indicator cracks, consistent with the company's historical performance. Moreover, the analysis anticipates operating expenses (opex) will align with the company's guidance.
The analyst clarified that the current base case scenario does not include potential benefits from any strategic reorganization due to uncertainties regarding the timeline for such changes. The downgrade and new price target reflect a cautious outlook on the stock, based on the current financial projections and market conditions.
In other recent news, Delek US Holdings, Inc. reported mixed Q1 results with a net loss of $33 million, despite strong operational results in its Refining and Logistics segments. The company is exploring strategic options for its retail and marketing businesses to unlock value across its system.
Analysts from JPMorgan (NYSE:JPM), Piper Sandler, Wells Fargo (NYSE:WFC), and TD Cowen have adjusted their price targets for Delek, citing reasons such as the company's Q1 earnings, ongoing strategic review, and the company's sum-of-the-parts valuation. JPMorgan and Wells Fargo have retained an Underweight rating, while Piper Sandler maintains a Neutral rating.
InvestingPro Insights
TD Cowen's downgrade of Delek US Holdings, Inc. (NYSE:DK) aligns with some of the cautionary signals highlighted by InvestingPro. The company's market capitalization stands at $1.62 billion, and it is trading at a low revenue valuation multiple with a price-to-book ratio of 1.9 as of the last twelve months up to Q1 2024. This could be indicative of the market's tempered expectations for the company's asset value and growth prospects.
InvestingPro Tips suggest that Delek's valuation implies a strong free cash flow yield, which could be a silver lining for investors seeking cash-generating assets. However, analysts are anticipating a sales decline in the current year, and the company has been grappling with weak gross profit margins of 5.79%. Despite these challenges, analysts predict that the company will turn profitable this year, which might provide some optimism for the stock's future performance.
For investors looking for more in-depth analysis and additional InvestingPro Tips, there are several more available at: https://www.investing.com/pro/DK. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription and gain access to exclusive insights that could inform your investment decisions.
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