From the homepage of HollyFrontier Corporation (NYSE: HFC), it says the company, “Is among the largest independent petroleum refiners in the United States with operations throughout the mid-continent, southwestern and Rocky Mountain regions. Subsidiaries of HollyFrontier Corporation produce and market gasoline, diesel, jet fuel, asphalt, heavy products and specialty lubricant products. The Company is headquartered in Dallas, Texas and operates five complex refineries with 443,000 barrels per day of crude oil processing capacity. Subsidiaries of HollyFrontier Corporation manufacture and market lubricants and specialty products through a subsidiary. Subsidiaries of HollyFrontier Corporation manufacture and market asphalt products and other heavy products at our five refineries and at our asphalt terminals in Arizona and New Mexico. The Company owns a 39% interest in Holly Energy Partners, L.P. (NYSE: HEP), which includes out 2% general partner interest.”
What is puzzling about this HollyFrontier is that it has been able to get any traction in what has been a profitable year for value stocks. Both the Motley Fool and Seeking Alpha wrote earlier this year that it would fit a Benjamin Graham philosophy, and it appears that nothing has substantially changed since then. The median analyst target price sits at $50.05, which gives it a more than a fair 17% margin of safety.
Our thinking is that one should take a hard look at this stock while it is selling so cheap. Currently the P/E(ttm) is around 5.5, and the Price-to-Sales ratio is 0.41. Here is how we look at it:
- The revenue growth rate has averaged 33%, and the earnings growth rate is just short of 23%. Add to this an attractive 21% return on equity, and one sees a profitable growing company.
- If one values dividends, they have grown 21% annually in the last five years.
- With operations in the American West and Canada, they are a domestic business so your money is close to home.
- The debt is under control at 0.16; half the average debt ratio for its peers.
- The current P/E is well under the five year average for HFC’s P/E of 24.7, which means it is selling at a discount to its historical levels.
- The margin of safety, as we see it, is strong enough to warrant this in a portfolio. The 3% dividend is a nice cushion while one waits for the price to go up over time. Given that the focus on this site is a buy and watch philosophy, one can do worst than HFC.
This is what one might find if s/he were to research HFC on his or her own. Please note that S&P has put a $55 price target on its rating for HFC.
|S&P Capital||4 Star|
|Reuters||4 out 10|
|MSN Money||4 out 10|
- Mixed Signals for Oil Stocks (247wallst.com)
- America’s Peak Oil Plan in Two Charts (dailyfinance.com)
- America’s Peak Oil Plan in Two Charts (fool.com)
- Holly Energy Partners Third Quarter 2013 Earnings Release and Conference Webcast (dailyfinance.com)
- Early Morning Insight: Valero Energy Corp., HollyFrontier Corp., PBF Energy Inc., and Northern Tier Energy L.P. (prnewswire.com)
- Ski Mt. Holly at a Discount (coupons.answers.com)
- Will Oil Via Rail Continue to Have Success in America? (fool.com)