XOM Stock – HollyFrontier Stock Poised For Growth — Trefis
The shares of HollyFrontier (NYSE: HFC) have gained 14% since early February to almost reach pre-Covid levels in recent months. Declining crude inventory levels coupled with OPEC+ curbs have pushed benchmark prices beyond $60/bbl – assisting cash flows for the broader oil industry. HollyFrontier is a petroleum refining company with facilities in Mid-Continent, Southwest, and Rocky Mountain Regions. Per recent filings, the company reported a throughput of 412 MBD with gasoline and diesel fuels accounting for 54% and 34% of total sales, respectively. Given the ongoing vaccination in major economies and rising demand, HFC stock has sizable upside potential. Our interactive dashboard analysis highlights HollyFrontier’s stock performance during the current crisis with that during the 2008 recession.
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- From 3/24/2020: S&P 500 recovers 88% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, here’s how HFC and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)
HFC Stock vs S&P 500 Performance Over 2007-08 Financial Crisis
HFC stock declined from levels of around $30 in September 2007 to levels of around $12 in March 2009 (as the markets bottomed out), implying HFC stock lost 62% from its pre-crisis level. It gained 10% post the 2008 crisis to levels of $13 in early 2010 – assisted by rising demand and benchmark prices. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.
HFC’s fundamentals improving with rising crack spread
In 2020, HollyFrontier observed a 36% (y-o-y) decline in its top line due to the pandemic, resulting in a net loss of $600 million. However, the company earned $458 million of cash from operations supporting dividend payouts and capital expenses. On the operational side, refinery gross margins fell by 54% (y-o-y) from $16/bbl in 2019 to $7.30/bbl in 2020 as crack spreads went into negative territory last summer. Subsequently, the net operating margin fell by a staggering 87% (y-o-y) as refinery operating expenses remained relatively level during times of depressed demand. Notably, the company reported a net operating margin of just $1.24/bbl in 2020. Refinery gross margin represents the difference between average sales price and average cost per barrel. Net operating margin is the difference between refinery gross margin and refinery operating expenses.
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment
Higher U.S. crude oil production coupled with declining inventories indicate growing demand for gasoline and diesel fuel. Thus, HFC stock is likely to benefit from higher benchmark prices and crack spread.
Is Exxon Mobil a better pick over HollyFrontier? Check out Exxon Mobil Stock Comparison With Peers to see how XOM compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.
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