HFC - Embedded Expectations Analysis - 2020 10 12
HollyFrontier Corporation (HFC:USA) currently trades at a discount relative to Uniform assets, with a 0.9x Uniform P/B. At these levels, the market has bearish expectations for the firm, and management may have concerns about gasoline demand, their lubricants business, and liquidity positionSpecifically, management may have concerns about the sustainability of gasoline demand and crude oil prices. In addition, they may lack confidence in their ability to sustain Rack Forward's strong first quarter results and maintain effective lubricants transportation. Furthermore, they may be overstating the M&A opportunities induced by the coronavirus crisis and the market's ability to normalize prices by Q3 and Q4 2020. Finally, they may lack confidence in their ability to sustain their liquidity position, and effectively allocate their capital budget
HollyFrontier is a petroleum refiner that produces products such as gasoline, diesel fuel, jet fuel, other lubricant products, and specialty and modified asphalt. The company's segments are: Refining, which involves the purchase and refining of crude oil and wholesale and marketing of refined products; Lubricants and Specialty Products, which includes the production of lubricant products such as base oils, white oils, other products and finished lubricants; and the company's subsidiary, Holly Energy Partners, L.P., which owns and operates logistics and refinery assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and processing units.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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