On Tuesday, JPMorgan (NYSE:JPM) shifted its stance on Delek US Holdings, Inc. (NYSE:DK), upgrading the stock from Underweight to Neutral and raising the price target to $26.00, up from the previous $23.00.
The adjustment follows Delek's strategic moves, which have involved reinvesting proceeds from high multiple asset sales into lower multiple acquisitions and organic projects, effectively generating approximately $45 million in consolidated EBITDA on a value-neutral basis.
The firm acknowledges that while there is potential upside from the market valuing the consolidated operations more favorably, this is not currently factored into their models. The revised price target reflects the value derived from this "free" EBITDA, calculated at approximately 9.5 times the asset sale reinvested at around 4 to 5 times on a consolidated level.
JPMorgan also noted Delek's progress towards its goal of increasing third-party exposure at the level of its subsidiary, Delek Logistics Partners (NYSE:DKL). The potential de-consolidation of DKL is seen as the next significant step, which could involve Delek US selling down its stake in DKL or pursuing growth through another acquisition using third-party equity, as suggested by the management's vocal intentions.
The firm's commentary indicates that the upgrade reflects a recognition of Delek US's strategic initiatives and their impact on the company's financials. The increased price target and upgraded stock rating are based on the current valuation and do not include possible future market reevaluations of the consolidated operations.
In other recent news, Delek US Holdings, Inc. has announced a significant expansion of its share repurchase program, with the Board of Directors approving an additional $400 million, raising the total funds available for repurchases to about $562 million. This move underscores the company's commitment to enhancing shareholder value.
In parallel, Delek Logistics Partners, LP has announced its intention to offer an additional $100 million in senior notes, maturing in 2029, to reduce the debt from its revolving credit facility.
TD Cowen revised Delek US's stock forecast, adjusting the price target to $18.00 from $19.00, while maintaining a Sell rating. This revision followed the company's recent strategic transactions, which sparked concerns over the company's financial strategy and future cash flow generation.
Delek US reported mixed financial results for its second quarter. Despite achieving record throughput and advancing strategic initiatives, the company faced a net loss of $37 million and negative cash flow. The company also announced significant transactions, including the sale of its retail business for $385 million and interests in assets to enhance its midstream partner DKL's position. These are among the recent developments for Delek US Holdings, Inc. and Delek Logistics Partners, LP.
InvestingPro Insights
In light of JPMorgan's recent upgrade of Delek US Holdings, Inc. (NYSE:DK), current market data from InvestingPro provides additional context for investors. As of the last twelve months leading up to Q2 2024, Delek's market capitalization stands at $1.21 billion, with a negative P/E ratio reflecting investor concerns about profitability. The company's revenue has seen a decline of 13.82%, aligning with analysts' expectations of a sales decline in the current year. Despite these challenges, Delek's valuation implies a strong free cash flow yield, which could be a silver lining for value-oriented investors.
InvestingPro Tips suggest that the stock has taken a significant hit over the last week, with a one-week price total return of -10.2%. Analysts have revised their earnings downwards for the upcoming period, and the consensus is that the company will not be profitable this year. However, Delek is trading at a low revenue valuation multiple, which could attract investors looking for undervalued opportunities. For those interested in a deeper dive, there are 9 additional InvestingPro Tips available, providing further analysis and potentially actionable insights.
Investors might also note the company's dividend yield, which stands at an attractive 5.44%, and the dividend growth over the last twelve months is 10.87%. This could appeal to income-focused investors, especially when considering the stock's current price relative to its 52-week high. The fair value estimates from analysts and InvestingPro stand at $24.00 and $18.83, respectively, offering perspectives on the stock's potential value. With the next earnings date set for November 4, 2024, investors will be watching closely for signs of turnaround or further decline.
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