Delek Holdings Downgraded At JPMorgan, Price Target Cut Following Sum Of The Parts Valuation

The valuation and leverage combination of Delek US Holdings, Inc. DK appears less compelling, JPMorgan’s Phil Gresh said in a report. He downgraded the rating for the company from Overweight to Neutral, while reducing the price target from $17 to $12.

Delek Holdings has a “relatively balanced portfolio mix,” with ~70 percent refining, ~20 percent logistics and ~10 percent retail. The company also has made some capital investment for refining, resulting in “a FCF inflection in 2Q15,” analyst Phil Gresh mentioned.

Poised For Growth

Delek Holdings’ retail and logistics segments are well positioned for significant growth, while the company would likely acquire the rest of Alon USA Energy, Inc. ALJ, which seems like “a good match with DK’s existing footprint,” Gresh commented. He added, however, that there were concerns related to Delek Holdings’ balance sheet in case the current macro environment persisted.

Estimates Reduced

The 2Q estimates in the sector have been lowered “as cracks softened in the final weeks of 2Q and capture rates (e.g., tight crude diffs, rising RINs) now look even more negative than we thought q/q,” the analyst said. Full-year estimates have been lowered, since strip cracks continued to decline in June.

The EPS estimates for 2Q and 2016 have been reduced from $(0.25) to $(0.30) and from $(2.00) to $(2.30), respectively.

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