Credit Suisse upgraded HollyFrontier Corp. (HFC, Financial), as reported by Barrons, from Neutral to Outperform with a new target price of $38 per share, suggesting to buy this stock even though the firm says it does not exclude the possibility of wide swings in the share price during the month due to “seasonal margins and the recent spike in crude.”
So far, 2016 has been a disappointing year for HollyFrontier. The stock has lost 22% year to date.
After the news that Credit Suisse had upgraded HollyFrontier, shares of the petroleum refiner surged 6.36% on the New York Stock Exchange, up from $29.23 on Dec. 2 to $31.09 on Dec. 5.
A volume of 4,223,037 shares were traded Monday on the New York Stock Exchange versus an average volume of 3.37 million shares over the last 10 trading days and an average volume of 3.88 million shares over the last three months.
The new target price set by Edward Westlake and Johannes Van Der Tuin, analysts at Credit Suisse, represents a $9 increase from the last target price of $29 per share.
Credit Suisse’s decision to upgrade HollyFrontier was based on the firm’s confidence that 2017 is going to be a good year for the refiner. They cited the possibility that the obligation to buy Renewable Identification Numbers (RINs) may shift away from refiners. They also believe a lower corporate tax rate will prove to be beneficial.
RINs are credits that a refining company must buy in place of blending its petroleum products with fuel produced from renewable resources, in accordance with the U.S. Environmental Protection Agency's Renewable Fuel Standard 2 or RFS2.
The Energy Policy Act of 2005 decreed the RFS2 regulations were to be followed by the refining industry, in which refiners were to blend their fuel supply with fuel produced from renewable resources, following the 2007 Energy Independence and Security Act (or EISA).
“The price of RINS has been subject to extreme volatility over the years and costs to purchase RINs can be significant,” HollyFrontier said in its 2015 Annual Report.
HollyFrontier’s strong balance sheet and operations should guarantee a 5% dividend yield to its shareholders:
"With a solid balance sheet and organic cash flow, the 5% yield is well supported. Total shareholder return, including capital appreciation, should be healthy as EBITDA recovers, according to Credit Suisse." (source: Barron’s)
HollyFrontier closed Monday at $31.09, ranging from a low price of $29.70 to a high price of $31.24 per share. The 52-week range is between $22.07 per share and $46.31 per share.
The stock is slightly more volatile than the stock market (beta = 1.18) and underperformed by 29.92% the Standard & Poor's 500 and by 30.95% the Dow Jones Industrial Average year to date.
HollyFrontier has a market capitalization of $5.5 billion and has 175.81 million shares outstanding. The percentage of shares held by insiders is 0.56% and by institutions is 82.70%.
The number of shares available for trading is 174.68 million. The price-earnings (P/E) ratio (TTM) is -15.37, the EPS (TTM) is -$2.02 per share and the dividend yield is 4.52%.
The company has approximately $478.16 million, or $2.72 per share, of cash on hand and securities that can be readily converted into cash. The total debt (mrq) is $1.67 billion and the book value per share (mrq) is $26.52.
Twelve out of a total of 16 analysts recommend to hold HollyFrontier and the recommendation rating is 2.9. The recommendation rating ranges between 1 (Strong Buy) and 5 (Sell).
The analyst price target is $29.92 on average versus a current share price of $31.09. The average price target ranges between a low price of $25 per share and a high price of $38 per share.
During the third quarter of 2016, David Dreman (Trades, Portfolio) reduced his position in HollyFrontier by 99.61% and Keeley Asset Management Corp (Trades, Portfolio) increased its position by 17.53%.
Disclosure: I have no positions in HollyFrontier Corp. (HFC, Financial).
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