HollyFrontier is one of the largest independent petroleum refiners in the United States. Refiners get to maximize their profit margin when crude oil prices (raw material) are low, and the demand for refined oil (end product) is high. HollyFrontier also has exposure to midstream assets such as crude oil storage and pipelines through its stake in Holly Energy Partners (HEP). With depressed crude oil prices, low petroleum demand, and oil/gas sector being in a slump, it’s important to take a look at such overlooked stocks as they tend to be value bargains. This week, I fundamentally analyze HollyFrontier’s stock. I review HollyFrontier’s key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and look at expected rate of return from this investment. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc.
After taking into account 2019’s free cash flow of $1,255 million figure, a 3% growth rate of FCF (growth for the next 10 years), 15% discount rate, 2% long term growth rate (growth from 10 year mark to perpetuity), 162 million shares outstanding, and $2,456 million of long term debt, the DCF analysis yields us an intrinsic value of $47.33 per share. Using the current stock price of about $29 per share, and taking into the shares outstanding and future projects of free cash flows, we get the expected rate of return of 11.1%.
1:51 Key Ratios Analysis
12:58 Discounted Cash Flow Analysis / Intrinsic Value
15:04 Expected Rate of Return Calculation
16:12 Summary / Conclusion
HollyFrontier’s Website: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Company overview: The HollyFrontier Corporation is a Fortune 500 company based in Dallas, TX. HollyFrontier is a petroleum refiner and distributor of petroleum products, from gasoline to petroleum-based lubricants and waxes.
Superior North LLC’s content is for educational purposes only. The calculators, videos, recommendations, and general investment ideas are not to be actioned with real money. Vyom Joshi is not a professional money manager or a financial advisor. Contact a professional and certified financial advisor before making any financial decisions. Please review the Disclaimer and Terms and Conditions.