Delek: Energy and Logistics Plus 7-Eleven Stores

12/14/2018 5:00 am EST


Crista Huff

Editor, Cabot Undervalued Stocks Advisor

Delek U.S. Holdings (DK) is a diversified downstream energy company, with businesses that include petroleum refining, transportation, marketing, renewables (producing biodiesel fuel) and asphalt operations, suggests Crista Huff, editor of Cabot Undervalued Stock Advisor.

Delek is the largest licensee of 7-Eleven stores in the U.S. Delek owns 63.4% of Delek Logistics Partners, LP (DKL), which operates through two segments: Pipelines and Transportation, and Wholesale Marketing and Terminaling.

Delek’s business is focused in the Permian Basin, where the federal government coincidentally just discovered the largest reserve of oil and natural gas ever assessed in the United States. Delek has a lower (better) valuation than all of its major peers as measured by EV/EDITDA.

Delek expects to achieve much higher midstream EBIDTA by the year 2022 – profits that contribute directly to cash flow. Excess cash flow will be used to repurchase stock, and to increase both dividend payouts and capital expenditures.

The company expects to repurchase $158 million of its stock during the fourth quarter, for a full-year total of $365 million. Delek also announced a quarterly dividend increase three times since November 2017. Secondary goals with cash flow include acquisitions and debt repayment.

DK is an extremely undervalued, aggressive growth, small-cap stock. Wall Street expects EPS to grow 304% and 38.1% in 2018 and 2019. The 2019 P/E is 6.1. DK is slowly improving from its October price correction; most likely to trade between 36 and 46 in the coming weeks. Yielding 2.7%, Delek could appeal to traders, growth investors and dividend investors.I rate the stock a buy.

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