PBF Energy's Integrated Success Creating Value

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About: PBF Energy (PBF)
by: Dalton Hicks
Summary

Looking into the value between the PBF Energy, PBF Logistics partnership.

Evaluating how PBF Logistics has stimulated value for PBF Energy and its shareholders.

Looking into PBF Energy's financial metrics, how they've improved, and how they show that PBF Energy is currently undervalued.

Thesis:

PBF Energy (NYSE: PBF) has demonstrated impressive success recently, especially with the success of its partner company, PBF Logistics (NYSE: PBFX). PBF Energy owns a ~44% interest in PBF Logistics, which has proven to be a strategic partnership. Since its inception in 2012, PBF Logistics has delivered 200%+ EBITDA growth, has given PBF Energy access to incremental third-party business, and access to more capital. The success of this partnership has enabled PBF Energy to produce financial metrics that are more worthy of investment. With the integrated success between PBF Energy and PBF Logistics, and PBF’s improving financial metrics, I believe PBF Energy is currently undervalued and worth looking into.

PBF/PBFX Partnership Analysis:

PBF Logistics has enabled PBF Energy to access third-party business from the partnership. This is significant because of the 200%+ EBITDA growth that PBF Logistics has delivered, 40% of that was derived from third-party business, acquisitions, and organic projects. PBFX has plans to augment organic growth, and is targeting $100 million in EBITDA over the next four years from organic projects. Should PBF Logistics meet those targets—which is likely considering management’s history of successfully executing acquisitions and delivering growth—PBF Energy would realize $44 million of those EBITDA. The partnership between PBF Energy and PBF Logistics is a strong qualitative aspect for PBF Energy investors. PBF Logistics has already added impressive value to PBF Energy and is on track to continue to do so. PBF Logistics also has a diversified footprint that is poised to promote the multi-segment growth business model between logistics and refining. The success and potential that this partnership has exhibited is the driving qualitative aspect behind my analysis on PBF Energy, and why I believe PBF Energy is currently undervalued.

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Earnings, Cash Flow, and Price Target Analysis and Forecast:

PBF Energy’s financial metrics have improved quite substantially from an investor standpoint since FY15. It has gone from FY14 cash flow of ($20.06) million to a current trailing twelve-month cash flow of $852 million. Its net income has gone from ($38.24) million in FY14 to a current trailing twelve-month net income of $724 million. PBF Energy reported a net margin of (0.19%) in FY14. As of 3Q18 PBF Energy reported a net margin of 2.35% and will likely achieve a FY18 year-end net margin around 3%. PBF Energy is expected to post revenue of $5.96 billion with an EPS estimate of $0.77. With a net margin of 2.35%, we can roughly estimate the 4Q18 net income figure to be $140 million and the FY18 net income figure to be approximately $622 million. That figure would translate to FY18 EPS of roughly $5.18, which is quite high in comparison to NASDAQ forecasts of FY18 EPS of $3.00. However, PBF Energy already has FY18 EPS of $4.14. As long as it meets its earnings expectations next week, and posts the consensus $0.77 EPS for 4Q18, PBF Energy will post FY18 year-end EPS of $4.91. With the average P/E Ratio of the energy sector being roughly 16.58 and with easily achievable FY18 EPS of $4.91, it wouldn’t be outlandish to say that a relatively fair value for PBF Energy is $73.65 per share. However, the refining industry more specifically trades around a P/E ratio of 10. At this P/E ratio PBF would trade at $49.10 per share, which I believe is quite a fair value for PBF Energy, and would represent a 40.56% upside from today’s closing price of $34.93 per share. When looking at the improvement of PBF Energy’s financial metrics, as well as the fact that it is undervalued in comparison to its peers, I believe that PBF is worth evaluating. Until a company produces many years of consistent financial metrics, I won’t run a long-term forecast on them. In this case I feel as though PBF Energy doesn’t have enough consistent data for me to provide a long-term outlook, however, I do believe that PBF Energy is currently undervalued, and I’m giving them a 12-month price target of $47.50 per share.

FY14

Current

Free Cash Flow

-$20.06

$852.00

FY14

Current

Net Income

-$38.24

$724.00

(Dalton H. 2019. MS Excel.)

Conclusion:

In conclusion, I believe PBF Energy’s partnership with PBF Logistics has proven to be strategic and successful. I think the partnership is adding value to PBF Energy shareholders, and I think that value has been shown in PBF Energy’s financial metrics and profitability. When looking at PBF Energy’s success and how they are valued in comparison to their peers, I believe they are currently undervalued. Thus, I believe PBF Energy’s initiative and success stimulating shareholder value, as well as the market fairly valuing PBF Energy, will enable PBF Energy to achieve a price target around $47.50 per share within a 12-month period.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in PBF 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.