Refiner Surges 50% as Option Bulls Score Big
HF Sinclair (DINO) has been a favorite name much of the year with a bullish view on Refiners and continues to trade very well.
On 7/18 we took a look at options positioning signals that were really well timed, and we also wrote it up two weeks ago again as the flow continues. Here was the 7/18 write-up.
“HF Sinclair (DINO) with August $50 calls opening 7500 recently into the dip in shares while August $35 puts sold to open 3500X and September $50 calls also with 2000X bought. DINO shares are +35% YTD but down 16% over the past month as commodities have come under pressure and refiners have faced scrutiny from the Government on excessive margins. DINO shares are attempting to base above a prior breakout retest while the 200-day moving average down near $38 could be more supportive. HF Sinclair is the new parent company and trading vehicle for Holly Frontier and Holly Energy Partners after their acquisition of Sinclair Oil and Sinclair Transportation. The NewCo has wide scale and scope from an expanded refining business, growing renewables business, a multi-national lubricants business, a market company, and nationwide logistics services. DINO is an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel, specialty lubricant products and specialty and modified asphalt. Its refinery operations serve the Mid-Continent, Southwest and Rocky Mountains extending into the Pacific Northwest geographic regions of the United States. Each refinery has the complexity to convert discounted, heavy and sour crude oils into a high percentage of gasoline, diesel and other high-value refined products. DINO fundamentals are very favorable due to strong gasoline and diesel demand, coupled with low product inventories. DINO has a market cap of $9.5B and trades 6.9X Earnings, 0.95X Book and 3.8X EBTDA with a 3.6% dividend yield. Revenues are seen rising 56% this year after 64.4% growth last year with EBITDA expected to rise 280%, next earnings report on August 8th. DINO’s renewables push is also a big driver of potential long-term growth as they’re targeting 200M gallons of renewable diesel per year as demand surges due to low-carbon fuel policies. Lubricants & Specialty Products has been a strong driver in recent quarters while the resumption of the dividend has been a reason for outperformance while delivery of earnings power of the recently-acquired assets and the resumption of the buyback program are future catalysts. Analysts have an average target of $57 with short interest low at 4.8% of the float. Cowen upgraded to Outperform in May seeing positive risk-reward after two well-timed acquisitions. Goldman upgraded shares to Buy in May positive on the overall backdrop for the group which includes high global gas prices, a rash of capacity retirements, reduced Russia exports following the Ukraine invasion, recovering jet fuel demand, changes in China export policies and tight global inventories for product, particularly distillate. DINO now offering the highest 2023 capital returns yield in the coverage group and sees the current margin environment as supportive of both refining and specialty product profitability, driving upside risk to consensus estimates. The company remains committed to its capital allocation strategy of returning $1 bn to shareholders over the next 12 months, with management intending to resume its share repurchases. “