Entering text into the input field will update the search result below

Is HollyFrontier A Bargain After Its Recent Correction?

Aristofanis Papadatos profile picture
Aristofanis Papadatos


  • HFC has markedly underperformed the market since it peaked early this year.
  • As a result, the stock has become a bargain.
  • Thanks to a series of tailwinds, I expect the stock to rally at least 10% in the next few months.

HollyFrontier (HFC) has markedly underperformed the market since it peaked early this year. To be sure, during this period, the stock has lost 17% whereas its peer, Valero (VLO), has lost just 5% and S&P has declined just 4%. Therefore, the big question is whether HollyFrontier has become a bargain or there is more pain ahead for its shareholders.

First of all, the crude oil that HollyFrontier processes in its five refineries is priced based on WTI, which is cheaper than Brent. Even better, this crude enjoys a discount compared to WTI. Therefore, the input cost of this refiner is lower than that of its international competitors, who pay for their crude oil based on Brent. Moreover, the company has managed to increase the capacity of its refineries by 15% in the last three years. As a result, it has significantly grown its production volumes during this period. In addition, it has markedly reduced its operating expenses, from $6.16 per barrel in 2014 to $5.40 last year. This is a critical parameter, as it determines how competitive each refiner is during a downturn of the sector.

Apart from refining, HollyFrontier also has a midstream segment, which involves pipelines, storage tanks and terminals of crude oil and products. The revenues of this segment are 100% fee-based and are thus resilient even when the price of oil is low. More than 80% of these revenues come from long-term contracts, with strict commitments from the side of the customers. Therefore, as the midstream segment offers a reliable and predictable stream of revenues, it is not surprising that it has achieved 52 consecutive quarterly distribution hikes. On the other hand, although the diversification provided by this segment is certainly a positive element, it is unfortunately limited, as this segment comprises only 18% of

This article was written by

Aristofanis Papadatos profile picture
I am a chemical engineer with a MS in Food Technology and Economics. I am also the author of 2 mathematics books ("Arithmetic calculations without a calculator" and "Word Problems") and perform almost all the calculations in my mind, without a calculator, making it easier to make immediate investing decisions among many alternatives. I invest applying fundamental and technical analysis and mainly use options as a tool for both investing and trading. I have nearly achieved my goal of early retirement, at the age of 45. In my spare time, I follow Warren Buffett's principle: "Some men read playboy. I read financial statements".

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in HFC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (14)

buy CVRR
Raleigh Reid profile picture
from the chart above, it would appear the improvement in op ex/barrel is due not so much to cost improvement but to volume improvement?
Buyandhold 2012 profile picture
First the good about HollyFrontier.

The 5 year expected PEG ratio is 0.18.

Then the bad about HollyFrontier.

The forward P/E ratio is higher than the trailing P/E ratio.
Great article with a lot of hidden facts about HFC.
Thank you Aristofanis Papadatos.
But you believe that as crude prices decline that is a head wind for HFC?
When the price of oil increases, it should po0sitively impact refineries as it increases the value of the product the refiners have on site.
One of the major problems with HFC is the price they have to pay fore those useless RINs!
The RINS need to go hasta la bye bye
I thought that President Trump was draining the swamp and getting rid of useless regulations; oh well I though wrong!
dontgiveuptheship profile picture
I might be adding more. I think they are a disciplined operation. Almost like a German company. I like that.
Great company and management. Been in and out of it from early days. Love the div HEP pays though as well as HFC which is less. Great company and great if you can get near 52 wk low and collect the div as you ride it up :)
I used to work there and could not disagree more. Place is a complete train wreck in operations, finance, culture, etc. They need to just sell the entire company.
Post acquisition issues? Any thoughts on management?
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.