If oil prices stabilize in 2018, investors may find themselves eyeing refinery companies. This potential move has HollyFrontier Corp HFC on Argus Research's radar.
The Analyst
Argus Research Company's Bill Selesky upgraded HollyFrontier's stock rating from Hold to Buy with a $53 price target on Monday morning.
The Thesis
HollyFrontier is an independent refiner and marketer that owns multiple refineries. Production averaged 454,790 barrels per day in the third quarter, up 3 percent from a year ago, Selesky said in a research report. If the price of oil stabilizes in the $50 to $60 range it will not only help boost the company's margin profile, but contribute to diminishing inventory levels of crude oil, gasoline, and diesel products.
Based on expectations for "modestly higher" crude oil prices throughout 2018, the analyst revised his earnings per share estimate from $2.10 to $2.65, the analyst wrote. 2017's estimates was also boosted from $1.32 per share to $2.19 to reflect a better than expected third quarter earnings report and expectations for increased pipeline throughout.
The analyst's $53 price target implies a 20x multiple on 2018's EPS estimate, which is in-line with the stock's current 20.0x multiple on 2017 EPS estimate.
Price Action
Shares of HollyFrontier hit a new 52-week high of $44.48 on Monday, before closing at $44.30. Shares are higher by more than 35 percent since the start of 2016.
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