HF Sinclair Corp (DINO, Financial) has recently recorded a daily gain of 2.8% and a remarkable 3-month gain of 36.27%. With an Earnings Per Share (EPS) (EPS) of 11.78, the question arises: is the stock fairly valued? In this article, we will delve into an analysis of HF Sinclair's valuation, offering a comprehensive overview of its financial strength, profitability, growth, and intrinsic value.
Company Overview
HF Sinclair Corp (DINO, Financial) is an integrated petroleum refiner with a significant presence across the Rockies, midcontinent, Southwest, and Pacific Northwest. The company owns and operates seven refineries, boasting a total crude oil throughput capacity of 678,000 barrels per day. With the ability to produce 380 million gallons of renewable diesel annually, HF Sinclair holds a robust marketing business. The company also holds a 47% ownership stake in Holly Energy Partners, which owns and operates petroleum product pipelines and terminals primarily in the southwestern United States.
Given its current price of $60.16 per share and a market cap of $11.10 billion, HF Sinclair's valuation appears to be in line with our estimate of its fair value. Let's delve deeper into the company's financials to validate this assessment.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line serves as a reference point for the stock's ideal fair trading value.
For HF Sinclair, the GF Value suggests that the stock is fairly valued. This conclusion is based on the historical multiples that the stock has traded at, the past business growth, and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given that HF Sinclair is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. HF Sinclair has a cash-to-debt ratio of 0.46, ranking it lower than 51.5% of 1033 companies in the Oil & Gas industry. Based on this, GuruFocus ranks HF Sinclair's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. HF Sinclair has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $35 billion and an Earnings Per Share (EPS) of $11.78. Its operating margin is 9.61%, which ranks better than 52.24% of 984 companies in the Oil & Gas industry. Overall, the profitability of HF Sinclair is ranked 8 out of 10, indicating strong profitability.
Growth
Growth is probably the most important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of HF Sinclair is 21.8%, which ranks better than 73.64% of 861 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 29.3%, which ranks better than 66.75% of 830 companies in the Oil & Gas industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, HF Sinclair's ROIC is 18.91 while its WACC came in at 9.09.
Conclusion
Overall, HF Sinclair (DINO, Financial) stock shows every sign of being fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 66.75% of 830 companies in the Oil & Gas industry. To learn more about HF Sinclair stock, you can check out its 30-Year Financials here.
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