Delek US Holdings Inc (DK, Financial) recently experienced a daily gain of 1.72%, and a 3-month gain of 15.79%. However, the company reported a Loss Per Share of 0.81. This raises the question: is the stock modestly undervalued? This article aims to provide an in-depth valuation analysis of Delek US Holdings Inc (DK). We invite you to explore the insights that follow.
Company Introduction
Delek US Holdings Inc is an integrated energy business focused on petroleum refining, transportation, and storage, along with wholesale crude oil, intermediate, and refined products, and convenience store retailing. The company owns and operates independent refineries that produce a variety of petroleum products for transportation and industrial markets in the United States. Delek's logistics segment sells portions of the petroleum products its refineries produce. The logistics segment generates revenue through gathering, transporting, and storing crude oil and intermediate products, as well as by marketing, storing, and distributing refined products. The company also offers a collection of retail fuel and convenience stores operating in the Southeast region of the United States. With a stock price of $28.14, how does this compare with the company's GF Value of $34.82?
Understanding the GF Value
The GF Value is a measure of a stock's intrinsic value, derived from a proprietary method exclusive to GuruFocus. The GF Value Line provides an overview of the fair value at which the stock should ideally be trading. It's calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Our analysis suggests that Delek US Holdings (DK, Financial) is modestly undervalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $28.14 per share, Delek US Holdings stock is estimated to be modestly undervalued. Therefore, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage are great ways to understand a company's financial strength. Delek US Holdings has a cash-to-debt ratio of 0.28, which ranks worse than 62.59% of 1021 companies in the Oil & Gas industry. The overall financial strength of Delek US Holdings is 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is typically a safer investment than one with low profit margins. Delek US Holdings has been profitable 7 times over the past 10 years. Over the past twelve months, the company had a revenue of $17.90 billion and a Loss Per Share of $0.81. Its operating margin is 0.62%, which ranks worse than 73.01% of 967 companies in the Oil & Gas industry. Overall, GuruFocus ranks the profitability of Delek US Holdings at 7 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is its growth. Long-term stock performance is closely correlated with growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Delek US Holdings has an average annual revenue growth of 32.6%, which ranks better than 85.18% of 850 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 7.2%, which ranks worse than 60.05% of 821 companies in the Oil & Gas industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Delek US Holdings's ROIC was 0.93, while its WACC came in at 6.99.
Conclusion
In conclusion, Delek US Holdings (DK, Financial) stock is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 60.05% of 821 companies in the Oil & Gas industry. To learn more about Delek US Holdings stock, you can check out its 30-Year Financials here.
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