HF Sinclair Corp – Valuation May 2023
Company Profile (excerpt from Wikipedia):
HF Sinclair Corporation (HF Sinclair) is a diversified energy company that manufactures and sells products such as gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, and specialty and modified asphalt, among others. It is based in Dallas, Texas.
The company operates seven complex oil refineries with a total crude oil processing capacity of 678,000 barrels per stream day. It has facilities in Cheyenne, Wyoming (52,000 barrels per day), El Dorado, Kansas (coking refinery – 135,000 bbl/d), Artesia, New Mexico (100,000 bbl/d), Tulsa, Oklahoma (125,000 bbl/d), Woods Cross, Utah (45,000 bbl/d), Sinclair, WY and Casper, WY. It operates three lubricants and specialties facilities in Mississauga (15,600 bbl/d), Petrolia, PA and in the Netherlands. The company also operates asphalt terminals in Arizona, New Mexico, and Oklahoma.
The company ranked 279th in the 2021 Fortune 500, based on its 2020 revenue.
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor | ||||
| Must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | Current Market Cap | $7,879,980,000.00 | PASS |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | Current Assets | $6,748,320,000.00 | |
| Current Liabilities | $3,245,530,000.00 | |||
| Current Ratio | 2.08 | PASS | ||
| 3. Earnings Stability | Positive EPS for 10 years prior | Year | EPS | |
| 2022-12 | $14.28 | |||
| 2021-12 | $3.39 | |||
| 2020-12 | -$3.72 | |||
| 2019-12 | $4.61 | |||
| 2018-12 | $6.19 | |||
| 2017-12 | $4.52 | |||
| 2016-12 | -$1.48 | |||
| 2015-12 | $3.90 | |||
| 2014-12 | $1.42 | |||
| 2013-12 | $3.64 | |||
| Years Positive | 8 | FAIL | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Year | Dividend | |
| 2022-12 | $1.20 | |||
| 2021-12 | $0.35 | |||
| 2020-12 | $1.40 | |||
| 2019-12 | $1.34 | |||
| 2018-12 | $1.32 | |||
| 2017-12 | $1.32 | |||
| 2016-12 | $1.32 | |||
| 2015-12 | $1.31 | |||
| 2014-12 | $1.26 | |||
| 2013-12 | $1.20 | |||
| Years With Payments | 10 | PASS | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | |||
| Beginning Average | $2.99 | |||
| End Average | $4.65 | |||
| Growth | 55.69% | PASS | ||
| 6. Moderate PEmg Ratio | PEmg < 20 | Price | $41.63 | |
| EPSmg | $7.08 | |||
| PEmg | 5.88 | PASS | ||
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | Price | $41.63 | |
| Book Value | $46.90 | |||
| PB Ratio | 0.89 | |||
| PB*PEmg | 5.22 | PASS | ||
| Total Score | 6 | |||
| Suitable for Defensive Investors? | YES | |||
| Enterprising Investor | ||||
| Must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | Current Assets | $6,748,320,000.00 | |
| Current Liabilities | $3,245,530,000.00 | |||
| Current Ratio | 2.08 | PASS | ||
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | Total Debt | $2,948,510,000.00 | |
| Current Assets | $6,748,320,000.00 | |||
| Current Liabilities | $3,245,530,000.00 | |||
| Net Current Assets | $3,502,790,000.00 | |||
| Debt to NCA | 0.84 | PASS | ||
| 3. Earnings Stability | Positive EPS for 5 years prior | Year | EPS | |
| 2022-12 | $14.28 | |||
| 2021-12 | $3.39 | |||
| 2020-12 | -$3.72 | |||
| 2019-12 | $4.61 | |||
| 2018-12 | $6.19 | |||
| Years Positive | 4 | FAIL | ||
| 4. Dividend Record | Currently Pays Dividend | Dividend | $1.20 | PASS |
| 5. Earnings Growth | EPSmg greater than 5 years ago | EPSmg – Current | $5.95 | |
| EPSmg – Prior | $3.59 | |||
| Growth | 65.79% | PASS | ||
| Total Score | 4 | |||
| Suitable? | YES | |||
Stage 2: Determination of Intrinsic Value
| MG Value Formula | ||||
| Value = EPSmg * (8.5+2g) |
| Calculating MG Value | |
| EPSmg | $7.08 |
| MG Growth Estimate | 10.57% |
| MG Value | $209.84 |
| Net Current Asset Value | -$6.82 |
| MG Value based on 3% Growth | $102.67 |
| MG Value based on 0% Growth | $60.19 |
| Market Implied Growth Rate | -1.31% |
| MG Grade | |
| Factor | Score |
| Investor Suitability | 2.0 |
| Good Price to Value? | 1.0 |
| Trading Below Graham Number? | 1.0 |
| Long-term Dividend Growth? | 0.0 |
| Dividend Yield Above 2%? | 0.5 |
| PEmg Below Industry Average? | 0.5 |
| Trading Below NCAV? | 0.0 |
| Total Score | 5.0 |
| MG Grade | A |
HF Sinclair Corp qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the lack of earnings stability, as the company had negative earnings in 2020 and 2016, but that is not enough to disqualify the company from the Defensive Investor’s requirements. The Enterprising Investor shares that concern, but again it is not enough to disqualify the company from consideration. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.15 in 2019 to an estimated $7.08 for 2023. This level of demonstrated earnings growth outpaces the market’s implied estimate of -1.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into HF Sinclair Corp revealed the company was trading below its Graham Number of $93.87. The company pays a dividend yield of 4.07%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 5.88, which was below the industry average of 23.16, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
HF Sinclair Corp fares extremely well in the ModernGraham grading system, scoring an A.
Stage 3: Information for Further Research
| Graham Number | $93.87 |
| PEmg | 5.88 |
| PB Ratio | 0.89 |
| Dividend Yield | 4.07% |
| TTM Dividend | $1.20 |
| Number of Consecutive Years of Dividend Growth | 2 |
Most Recent Balance Sheet Figures
| Balance Sheet | Date |
| Total Current Assets | $6,748,320,000.00 |
| Total Current Liabilities | $3,245,530,000.00 |
| Long Term Debt | $2,948,510,000.00 |
| Total Assets | $18,125,480,000.00 |
| Intangible Assets | $3,442,040,000.00 |
| Total Liabilities | $8,107,910,000.00 |
| Shares Outstanding (diluted) | 199,430,000.00 |
Earnings Per Share History
| Earnings | ||
| Year | EPS (diluted) | EPSmg |
| Estimated-Next FY | $8.35 | $7.08 |
| 2022-12 | $14.28 | $5.95 |
| 2021-12 | $3.39 | $2.19 |
| 2020-12 | -$3.72 | $1.73 |
| 2019-12 | $4.61 | $4.15 |
| 2018-12 | $6.19 | $3.59 |
| 2017-12 | $4.52 | $2.32 |
| 2016-12 | -$1.48 | $1.87 |
| 2015-12 | $3.90 | $3.95 |
| 2014-12 | $1.42 | $4.04 |
| 2013-12 | $3.64 | $4.87 |
| 2012-12 | $8.38 | $4.80 |
| 2011-12 | $6.42 | $2.80 |
| 2010-12 | $0.97 | $1.16 |
| 2009-12 | $0.20 | $1.37 |
| 2008-12 | $1.19 | $1.87 |
| 2007-12 | $2.99 | $1.98 |
| 2006-12 | $2.29 | $1.31 |
| 2005-12 | $1.33 | $0.76 |
| 2004-12 | $0.65 | $0.45 |
| 2003-12 | $0.36 | $0.33 |
| 2002-07 | $0.25 | $0.29 |
| 2001-07 | $0.60 | $0.27 |
| 2000-07 | $0.09 | $0.12 |
| 1999-07 | $0.15 | $0.13 |
| 1998-07 | $0.12 | $0.12 |
| 1997-07 | $0.10 | $0.13 |
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.
