MacroHint

Stock Analysis: HF Sinclair (NYSE: DINO)

This article is proudly sponsored by Lake Region State College!

About HF Sinclair

Now, why on earth would a company by the name of HF Sinclair have its ticker symbol as “DINO?”

Isn’t that completely and utterly random?

Well, in a way, yes.

However, it becomes a lot less random in a sense when you realize that the company’s mascot is a dinosaur.

In fact, at most (if not all) of the Sinclair-brand gas stations across the United States, there is a seemingly full-scale dinosaur replica perched near the pumps, just waiting for you to stop by and fill up.

We wanted to get that out of the way before you jumped to any conclusions because no, sadly, this company isn’t in the business of selling dinosaurs or any other of our long-limbed friends of the past. But rather, HF Sinclair is an energy company, specializing in oil and gas headquartered in, where else but Texas, specifically Dallas.

So far we have established that HF Sinclair is an oil and gas company with a dinosaur as a mascot.

Whoopee!

Sorry Chevron, but their gas station designs are just a little more exciting.

Although HF Sinclair is a petroleum manufacturer and refiner at heart, the company also operates in a few other sub-sectors of the oil and gas industry. Specifically, according to TD Ameritrade’s platform, Sinclair also produces and markets diesel fuel, jet fuel, renewable diesel and other products, and has operations (refineries, mainly) across the United States in regions such as Texas, Wyoming, New Mexico, Oklahoma, Utah, Kansas and Washington as well.

The company also sells specialty oils and lubricants used in products such as motor oil, transmission products, performance fluids and a few other products that are more vital than not to one’s car.

All things considered, Sinclair can simply be thought of as a refiner that manufactures a variety of mission critical energy-related products.

Before venturing further into the company and its financials, a short note of awareness or even caution for that matter is in order.

Like other big names in the oil and gas sector, HF Sinclair is particularly sensitive to supply and/or demand shifts. In other words, the company’s stock will inevitably fall or rise with trends related to supply and/or demand, both in the short and/or long-term.

Sinclair Dinosaur in a circus parade on State Street, Ann … | Flickr

It’s good to have a good stomach but more importantly a long-term perspective when investing in companies operating in the energy industry.

Now that some of the groundwork has been laid regarding HF Sinclair and, more importantly, the dinosaur stuff is out there, let’s continue on our journey and gain a little more clarity as to how financially strong this little-known refiner is.

HF Sinclair’s stock financials

HF Sinclair’s stock (NYSE: DINO) is currently trading at a share price of $54.62 with an associated market capitalization of $11 billion, a price-to-earnings (P/E) ratio of 5.07 all while dishing out an annual dividend of $1.60 to its shareholders.

This is a great start, as Sinclair’s stock price appears to be trading at well below that of fair value given the fact that its P/E is miles below 20, which is generally considered to indicate that a stock is trading at fair value or what it’s worth and thus anything below 20 implies that a stock is trading below fair value, or in other words, undervalued.

Since Sinclair’s P/E is presently about a fourth of fair value on the price-to-earnings spectrum, it’s safe to say that the company’s stock is trading well below fair value at the time of this publication.

Stepping over to the company’s balance sheet, HF Sinclair’s executive team is in charge of approximately $12.9 billion in total assets as well as around $7.2 billion in total liabilities. 

Given the overall breakdown of the company’s balance sheet, we have no complaints, as its total assets outweigh its total liabilities by a significant margin, indicating that it is seemingly well capitalized and prepared for any (within reason, of course) price volatility that lies ahead. 

Moving over to the company’s income statement, HF Sinclair’s recent total revenue figures (specifically over the last five years) have been far from shocking.

For instance, the company’s total revenue stayed in the neighborhood of around $17 billion in both 2018 and 2019, however, it experienced a subsequent drop in 2020 to nearly $11.2 billion, as demand drove off of a cliff as COVID-19-related restrictions were suddenly put in place and demand for travel correspondingly fell as well and thus overall demand for HF Sinclair’s products.

This speaks to the added volatility factor investors have to get their heads around in the oil and gas space.

It wasn’t Sinclair’s fault that the global economy came to a sudden screeching halt.

That being said, the following year Sinclair reported annual revenues of $18.3 billion which we liked but also expected, as demand for oil and energy-related products dramatically rose following the brunt of COVID-19.

From the perspective of the company’s cash flow statement, things were pretty normal until 2019 and 2020 came around, as Sinclair’s net income over the last handful of years stood positive, however, it suddenly shot down to -$515 million in 2020, as again, demand took a dive. Nevertheless, as evidenced in its 2021 net income, this is a demand driven business as the company’s net income was reported as $663 million, as restrictions began to ease and demand for travel skyrocketed.

Investing in oil and gas companies isn’t necessarily for the faint of heart.

HF Sinclair’s stock fundamentals

From the standpoint of profitability, HF Sinclair operates in a competitive industry yet still touts a more than competitive trailing twelve month (TTM) net profit margin.

Specifically, the company’s TTM net profit margin is presently pegged at 6.89% to the industry’s average of 2.88%. While we wouldn’t go so far as to say that this is a material, extraordinary difference, it certainly is one to note as the refining business and energy industry in general is very, very competitive.

Lastly, let’s take a peek at HF Sinclair’s TTM returns on assets and investment, shall we?

#sinclair #dinosaur greeting the #visitors #landmark #trad… | Flickr

According to TD Ameritrade’s platform, Sinclair’s TTM returns on assets are pretty much the same as the industry’s average, standing at around 15%, whereas the company’s TTM returns on investment lag behind the industry by a little more than 2%.

As to this last point, we don’t view the company’s TTM returns on investment as a red flag, as it is still fairly neck and neck with the industry as a whole. Additionally, time will ultimately play a substantial role in Sinclair’s TTM returns on investment improving, but again, this metric isn’t substantially separated from the industry’s average in the first place, so we can still sleep well at night.

Should you buy HF Sinclair stock?

While this is an overall well capitalized, well-oiled (pun intended) machine of a company, we think there are better options out there.

Namely, as we have written about other premier oil and gas companies in previous stock analysis articles, although the dinosaur is quite compelling and the numbers behind this company are good overall, especially given that it is apparently trading well below fair value, there are other companies within the energy sector that are a bit more diversified in their operations and offerings and thus a bit less sensitive to broad economic and demand-related shocks.

Given this information and our opinions on others within the energy sector, we give Sinclair’s stock a “hold” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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