In the dynamic landscape of energy investments, the actions of insiders can often speak volumes to market observers. That's why the recent news of Chair Franklin Myers’ significant investment of over $372K in HF Sinclair Corp. (DINO) has ignited fresh interest among investors. With Myers demonstrating his continued faith in the company through substantial stock purchases, investors are eyeing the underlying reasons fueling his confidence and the potential implications for DINO’s future trajectory.
While market-watchers dissect the implications of the board chair's continued support for DINO, our analysis should also include the broader investment thesis surrounding the company. With DINO boasting a dividend yield of about 3.6%, solid financials, an appealing valuation, and a consensus “Moderate Buy” rating from analysts, the stock presents an attractive proposition for income-oriented investors seeking stable returns.
Let’s have a closer look.
About HF Sinclair Corporation Stock
With a market cap of $10.78 billion, HF Sinclair Corporation (DINO) engages in refining, transporting, storing, and marketing petroleum products, with its refineries specializing in the production of light products like gasoline, diesel fuel, and jet fuel, which are then marketed in the southwestern U.S., northern Mexico, and Montana.
Shares of HF Sinclair have climbed about 29% over the past 52 weeks, outperforming the S&P 500 Energy Sector SPDR ETF’s (XLE) 16.5% gain over the same period.
Recent News for DINO Stock
On April 11, Scotiabank raised its price target on HF Sinclair to $66 from $58 and kept an “Outperform” rating on the shares. The target change reflects the firm’s recently released commodity price deck, which includes increased near- and long-term oil price forecasts and valuations across various metrics, Scotiabank's analyst informed investors.
On April 5, Piper Sandler raised its price target on HF Sinclair to $70 from $67 and backed its own “Overweight” rating. The firm’s analyst believes that, from a longer-term perspective, the independent refiner group remains relatively inexpensive. “The stocks are largely discounting mid-cycle EBITDAs in 2025 when adjusted for ongoing share buybacks,” the firm told investors in a research note.
On March 15, BofA analyst Doug Leggate upgraded HF Sinclair to “Buy” from “Neutral” with a price target of $78, up from $62. When contemplating a sustainable rise in mid-cycle earnings, the brokerage sees the conditions aligned for another elevation in absolute valuations for U.S. refiners. It has consequently lifted its price targets in the group by an average of 25%.
More specifically, with the U.S. refining system entering its third seasonal cycle post-COVID, BofA observes several recurring factors that shape its perception of what defines a higher, sustainable mid-cycle compared to a 10-year perspective, noting that as of the current assessment, 2024 is “headed for another above mid-cycle year.”
HF Sinclair Chair Continues to Buy the Stock
In a regulatory filing, HF Sinclair disclosed that Chair Franklin Myers bought 6.5K shares of common stock at an average price of $57.37 on May 20, bringing the total transaction size to nearly $373K.
Chairman Franklin Myers has been buying DINO stock for a while now. His only previous purchase this year occurred on Feb. 26, when he bought 4.18K shares of common stock at $58.94 in a total transaction size of $246,369. Myers currently holds 138,293 shares of the company, which constitutes 0.0720% of the total outstanding shares.
How Did HF Sinclair Perform in Q1?
HF Sinclair reported its Q1 earnings results on May 8. In the first quarter of 2024, adjusted net income attributable to HF Sinclair stockholders stood at $142.3 million, or $0.71 per diluted share, contrasting with $394.1 million, or $2.00 per diluted share, in the first quarter of 2023. The decline in net income was primarily due to reduced refinery gross margins in both the West and Mid-Continent regions, partially mitigated by increased volumes of refined product sales.
Nevertheless, the company’s Q1 adjusted EPS topped analysts’ expectations by $0.04. Adjusted EBITDA came in at $399 million in the first quarter, down from $705 million in the same period of 2023 - primarily due to lower adjusted EBITDA in the refining segment, driven by lower refinery gross margins in both the West and Mid-Con regions, stemming from seasonal demand weakness for transportation fuels.
Notably, net cash flows provided by operating activities amounted to $316.9 million in the first quarter, marking a substantial increase from $177.7 million in the corresponding period last year. This was primarily attributed to changes in working capital, combined with reduced turnaround spend. HF Sinclair also decreased its debt by about $62 million during the quarter by repaying a portion of the outstanding debt under the HEP revolver. As of March 31, the company held $2.7 billion in outstanding debt, reflecting a debt-to-capital ratio of 21% and a net debt-to-capital ratio of 11%.
In fiscal 2024, management anticipates allocating around $800 million towards sustaining capital, including turnaround and catalysts. Also, the company expects to spend $75 million in growth capital investments across its business segments. For the second quarter of 2024, management anticipates the company to refine between 620,000 and 650,000 barrels per day of crude oil.
Analysts tracking HF Sinclair anticipate a 35.44% year-over-year decline in the company’s profit to $6.14 per share in fiscal 2024. Furthermore, Wall Street expects DINO's full-year revenue to remain mostly unchanged year-over-year at $31.75 billion.
DINO Stock Valuation and Dividend Yield
Priced at 9.30x forward earnings, the stock is trading significantly below the sector median of 11.33x and its own five-year average of 54.46x. Additionally, the company’s forward EV/EBITDA ratio stands at 5.26x, which is lower than both the sector median of 5.75x and its own five-year average of 6.84x. These multipliers indicate that DINO does not have a high valuation relative to the cash it can generate.
On May 8, HF Sinclair declared a dividend of $0.50 per share, payable to its shareholders on June 5. Its annualized dividend of $2.00 per share translates to a dividend yield of 3.52%, which is roughly in line with the sector median of 3.63%. It is also important to note that the company maintains a payout ratio of 22.45%, indicating favorable retention of earnings for future growth and stability.
In the first quarter, the company returned $269 million to shareholders through share repurchases and dividends. As of April 30, the company had repurchased an extra $296 million from REH Co. in the second quarter, resulting in a decrease of over 7.9 million shares in its share count year-to-date. Since March 2022, the company has repurchased over 53 million shares, roughly 89% of the shares issued for its Sinclair transaction. Furthermore, on May 8, HF Sinclair announced that its Board of Directors authorized a new $1.0 billion share repurchase program.
All of these factors demonstrate the company’s commitment to delivering returns to its shareholders.
Options Market Sentiment on HF Sinclair Stock
Examining the June 21, 2024, option chain for DINO, we can assess the market sentiment by comparing the open interest levels.
At the $55.00 strike price, which is closest to the current share price, the put-call ratio is 1.22. This indicates a slightly stronger preference for put options. However, at the overhead strike price of $60.00, the put-call ratio is 0.28, signaling a strong bullish sentiment.
What Do Analysts Expect For DINO Stock?
Analysts have a consensus rating of “Moderate Buy” on HF Sinclair stock, with a mean target price of $64.18, which indicates an upside potential of about 14% from the stock’s Friday close. Out of 12 analysts covering the stock, seven analysts recommend a “Strong Buy,” and five give a “Hold” rating.
