Holly Frontier Corporation HFC

Holly Frontier an Independent Petroleum Refiners in The US

March 6th, 2014 Posted by Company Research Report No Comment yet

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Holly Frontier Corporation (HollyFrontier), formerly Holly Corporation, is a petroleum refiner, which produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt.  Operates in two segments: Refining and Holly Energy Partners, L.P. The Refining segment includes the operations of its El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries and NK Asphalt. The HEP segment involves all of the operations of HEP.

As of December 31, 2011, it operated five refineries having a combined crude oil processing capacity of 443,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The Company merged with Frontier Oil Corporation (Frontier), on July 1, 2011. On November 9, 2011, HEP acquired from the Company certain tankage, loading rack and crude receiving assets located at its El Dorado and Cheyenne Refineries. The Company owns a 39% interest in Holly Energy Partners, L.P. (NYSE: HEP), which includes our 2% general partner interest.

How does the company make money?

HEP owns and operates logistic assets consisting of petroleum product and crude oil pipelines and terminal, tankage and loading rack facilities. Revenues are generated by charging tariffs for transporting petroleum products and crude oil through its pipelines and by charging fees for terminal petroleum products and other hydrocarbons, and storing and providing other services at its storage tanks and terminals.

Who is running the business?

holly frontier corporation

Mr. Michael C. Jennings, also known as Mike, has been the Chief Executive Officer and President of HollyFrontier Corporation since July 2011, also serves as Chief Executive Officer and President at HEP UNEV Pipeline LLC. Mr. Jennings has been the Chairman of the Board at HollyFrontier Corporation since January 1, 2013, He has 18 years of experience in finance and acquisitions with Cameron International Corporation (formerly, Cooper Cameron Corp.), Unimin Corp., British Petroleum and U.S. Trust Company of New York.

Mr. Jennings served as the Executive Vice President of Finance & Administration and Chief Financial Officer of Frontier Oil Corp. from June 14, 2005 to January 1, 2009. He served as Vice President and Treasurer of Cameron International Corporation from May 2000 to June 2005. From December 1998 to May 2000, he served as Vice President of Finance and Corporate Development of Unimin Corporation. Mr. Jennings holds a Bachelor of Arts degree in Economics and Government from Dartmouth College and a Master of Business Administration degree in Finance and Accounting from the University of Chicago.

holly frontier corporation

Mr. Douglas S. Aron is Chief Financial Officer, Executive Vice President of HollyFrontier Corporation. He served as Executive Vice President and Chief Financial Officer of HLS since November 2012, a position he previously held from July 2011 through December 2011. Prior to joining the Company, he was Executive Vice President and Chief Financial Officer of Frontier from 2009 until 2011. Additionally, he served as Vice President-Corporate Finance of Frontier from 2005 to 2009 and Director-Investor Relations from 2001 to 2005. He was responsible for the treasury department, investor relations and capital markets for Frontier Oil Corp. He served as a Commercial Lending Officer of Amegy Bank (formerly Southwest Bank of Texas) from March 1998 to March 2001. He served as Senior Vice President of Holly Logistics Services, L.L.C. Mr. Aron earned an MBA from the Jesse H. Jones Graduate School of Business at Rice University and a B.J. from the University of Texas at Austin.

Financial health

Let’s look into the liquidity and solvency ratios as our measurement of financial stability of Holly Frontier Corporation.

The current ratio of Holly Frontier Corporation showed an average of 1.73times. And it has been trending up since 2010 to 2012 and dip down in 2013 due to decrease in total current asset. This indicates their market liquidity or their ability to meet creditor’s demands is within the limits of generally accepted range of 1.5 to 3.0.

Holly Frontier’s quick ratio has an average 1.21 times and has been going up since 2008 but in 2013 it decreased in total cash. This means that a company has $1.21 of liquid assets available to cover each $1 of current liabilities.The company has  solvency  average of 68 percent and has been increasing after it decline to 17 percent in 2009.

Income Statement

 

Holly Frontier Corporation has an average of 11 percent. This number represents the proportion of each dollar of revenue that the company retains as gross profit. And the higher the percentage, the more the company retains on each dollar of revenue to service its other costs and obligations. As shown in above data it had increase from 2009 to 2011 and declined in 2012 and 2013 because of the decrease in gross profit.

They have a net margin an average 4 percent, this shows how much of each dollar earned by the company is translated into profits. As shown on table above HFC has increase in 2011 and then slightly declined in 2012 and 2013 due to decrease in net income.

Holly Frontier Corporation has an average 53 percent cash flow margin and TTM of 57 percent. This means the higher the percentage, the more cash available from the sales. Meanwhile its free cash flow ratio depicted an average of 5 percent and TTM of 68 percent. The more free cash flows are embedded in the operating cash flows of a company, the better it is. This is a very good indicator of the financial health of a company.

Investment Valuation

Valuation is at the heart of any investment decision, whether that decision is a buy, sell or hold. Totem’s Pricing Model adopts the investment styles applicable to the company. One valuation style is that,seeks out undervalued companies whose stock price are temporarily down but whose fundamentals are sound in the long run. The philosophy was to buy wisely when prices fall and to sell wisely when the price rise a great deal

Relative Valuation Methods

This is to compare market values of the stock with the fundamentals, their earnings, book value, growth multiples, and other metrics.

holly frontier corporation

The book value per share showed an increasing trend with TTM of $31.02 and an average of $19.09 per share. Its price to earnings increased 1,010 percent in 2009 then declined for the last two years and increase again 5.6 and 13.6 in 2012 and 2013 with TTM of  12.5 and an average of 21.36 per share. Earnings per share drop down $0.20 and 0.97 in 2009 and 2010, abruptly increased in 2011 and 2012 then declined to $3.64 in 2013 with an average of $3.72 per share. Holly Frontier Corporation return on equity drastically showed an up and then down trend with an average of $19.40. Generally, these indicate a good gauge of their profitability and was able to generate favorable returns on their earnings.

The summary data as seen in the table below:

Growth — 25%

Yield —  1.8 %

Value of Appreciation — $ 302.50

Value Dividend   —  5.47

Total Value  — 307.97

Price Investor is Willing to Pay — $ 1, 166.15

As computed Holly Frontier Corporation has an equity growth of 25 percent and dividend yield of 1.8 percent. To get the total value or the worth of the company using the formula value dividend plus the value appreciation. Wherein value appreciation of $302.50 is equivalent to Warren Buffet’s margin of safety of 40 percent of the calculated present value. And the value dividend of $5.47 is dividend divided by interest rate of 15% (which is constant). So, the total of the two resulted in $307.97 as their total value. Compares the total value of $307.97 with the current price per share of $45.57dated February 28, 2014. This indicates that the stock is trading at an undervalued price meaning a candidate for a buy. And price investor is willing to pay as computed by multiplying historical P/E with expected earnings in five years amounted to $1,166.15 per share.

Conclusion

 Holly Frontier’s current price was $45.57 over a total value of $307.95.   Plus, value investing is buying with a sufficient margin of safety of 50 percent as computed which is above 40%. Overall, with data as computed Holly Frontier Corporation is financially healthy and merits a buy.

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