3 Reasons Why This PBF Energy Analyst Turned Bearish

Although PBF Energy Inc PBF reported fourth-quarter results that were higher than the Street's expectations, there are concerns over the company’s ability to generate free cash flow, significant downside to consensus estimates and near-term risk to feedstock costs, according to Goldman Sachs.

The PBF Analyst

Neil Mehta downgraded PBF Energy from Neutral to Sell and reduced the price target from $32 to $28.

The PBF Thesis

PBF Energy stock has limited upside potential after its strong performance over the last six months, Mehta said in the Tuesday downgrade note. (See his track record here.)

The analyst named three reasons for the Sell rating:

The company’s free cash flow generation power is likely to be limited through the cycle, he said. PBF Energy is trading at a 2020-2022 free cash flow yield of 3%, while its peers are at 8%.

Mehta also cited downside risk to the consensus earnings estimates. Goldman Sachs’ estimates for 2020 and 2021 are short of Street expectations by 36% and 23%, respectively, despite incorporating 186% year-on-year earnings growth.

PBF Energy has near-term risks to feedstock costs, the analyst said: sulfur fuel oil discounts have narrowed and the Organization of Petroleum Exporting Countries is evaluating another production cut in March.