3 Reasons Deutsche Bank Downgraded Delek US Holdings

Deutsche Bank downgraded Delek US Holdings, Inc. DK Thursday from Buy to Hold and cut its price target from $40 to $37.

Analysts Ryan Todd and Igor Grinman based downgrade on three factors.

First, the company’s valuation was relatively high after being a top performer YTD, up 8 percent versus its peers.

Second, the company had a “relatively disadvantaged refining system in the current low oil price environment.”

Third, the analyst report indicated “limited visibility on forward non-refining value creation.”

Regarding the company’s refining system, Todd commented that it “does not offer the same opportunity to boost (and be able to sustain strong) capture rates and capture today’s wider differentials as it does for the likes of [Valero Energy Corporation VLO and Marathon Petroleum Corp MPC].”

The $37 price target was based on a Sum of The Parts (SOTP) valuation using 2016E EV/EBITDA multiples for valuation of non-MLP segments. A 4.0x multiple was used for the refining segment and a 7.5x multiple for the retail segment.

Todd saw a key downside risk from a possible “collapse in product demand from its primary product markets that could potentially reset the premium that the company has historically commanded over competing Gulf Coast products.”

Delek US Holdings, Inc. closed at $32.95 Thursday, down 0.84 percent.