PBF - PBF Energy: Remain Bullish After Q2-2023 Earnings

2023-08-21 16:58:29 ET

Summary

• PBF Energy's Q2-2023 report showed strong financial performance despite lower average crack spread prices.
• The company recently formed a joint partnership with Eni Sustainable Mobility to set up a biorefinery, which has begun operations.
• The stock price has been on an uptrend and may continue to rise, but market conditions and oil prices could cause fluctuations.
• I rate the company as a hold for now.

PBF Energy ( PBF ) has gained more than 15% since I covered the company last April with a Strong Buy . The company’s Q1-2023 report was strong, although it showed a decrease in performance compared to Q4-2022. Its recent Q2-2023 report was also strong and the stock has continued to uptrend. Over the last three months, the energy sector has been the top performing. Exploration and production holds the second place for top performance within the energy sector.

The financial performance of PBF relies on the average number of barrels of oil processed per day and the average crack spread price at the time of sale. Crack spread price decreased since my last coverage, but is now back on the increase and expected to stay high for the remainder of the year. Crack spread prices typically foreshadow oil price movements by about a month. PBF’s financial performance for Q1-2023 and Q2-2023 reflected lower average crack spread prices.

Regardless of lower contract prices, PBF reported strong Q2-2023 results because of the closing of a recent partnership, where the company received capital reimbursements. If this deal had not closed during Q2-2023, then the results would have been weaker than previous reports. The company still processed about the same amount of oil during the period. Weaker average crack spread prices brought down the overall numbers. Otherwise, the company reported a high net income and cash on hand.

I give the company a rating of a hold and still consider a long-term strategy attractive. I am looking at the $50 per share line as the next point of resistance. If the stock price stabilizes around this mark, then a small gain of 3% may be realized; at $55, then a gain of 13.5%. It may be better to let the current rally subside and buy at the dip, since the stock price has not broken $50 in its lifetime. Recent analysis on Seeking Alpha recommends an options strategy for playing the ups and downs of the stock price. If the company reports strong Q3-2023 financial performance and the average crack spread price increases, then it is possible that the stock price will rally higher.

St. Bernard Biorefinery Joint Partnership

PBF Energy recently entered a 50-50 joint partnership with Eni Sustainable Mobility Spa to set up St. Bernard Renewables, a biorefinery. An affiliate of PBF contributed the biorefinery and other assets, located near PBF’s Chalmette Refinery in Louisiana. In return, Eni Sustainable Mobility promised to make capital reimbursements to PBF in the amount of $835 million. Eni Sustainable paid PBF $431 million during Q2-2023. PBF expects to receive more milestone payments from Eni Sustainable Mobility.

St. Bernard Renewables biorefinery has begun operations and began producing commercial products in June. The facility has the capacity to process 1.1 million tonnes per year of raw materials. The plant will produce HVO Diesel or renewable diesel. The plant will have the capacity to produce 306 million gallons per year. PBF Energy holds a 50% stake in St. Bernard Renewables. The facility was producing feedstocks in July and renewable fuels were sold during the third quarter.

Q2-2023 Results

PBF Energy reported $1,398.2 million in income from operations compared to $1,706.6 million YoY, representing an 18% decrease YoY. Excluding special items (SBR partnership), the company reported $403.7 million in income from operations, representing a 76% decline YoY. Net income for PBF was $1,020.4 million or $7.88 per share. Of the net income, $729.4 million or $5.59 per share was attributed to adjustments resulting from the St. Bernard Renewables ((SBR)) 50% interest. Setting aside this item, net income was $298.3 million or $2.29 per share. The company reported around $1.5 billion of cash at the end of the quarter.

The company reported revenues of $9,157.6 million compared to $14,077.7 million YoY, representing a decline of 35%. The company produced 945,700 barrels per day compared to 958,800 YoY.

Source: Company's quarterly reports

The company expects to report between 925,000 and 985,000 barrels per day for Q3-2023.

For Q2-2023, the company reported lower crack spread prices across the board.

Source: Q2-2023 Press Release

The prices have decreased and thus overall revenue numbers have decreased. Contract prices have receded from their 2022 highs. Oil is currently going up and so are crack spread prices.

Source: MacroMicro.me

The price is currently trading around $42, which is higher than PBF reported during Q2. Since current crack spread prices are high, oil may be on the rise. Crack spread prices lead oil prices typically by one month. It is uncertain whether contract prices will remain high. The short-term forecast maintains that they will remain elevated. The current market consensus for PBF’s Q3-2023 earnings is $9,500 million and an EPS of $3.44. The company will report in late October.

Source: Seeking Alpha

The company’s revenues have decreased over the quarters, while crack spread prices have decreased. The results of Q3-2023 will depend on the average contract prices. The company expects production of barrels of oil per day to be in-line with previous quarters.

Stock Price Movements

Source: StockCharts.com

The stock price has increased 35.81% over the last year and 28.56% over the last three months. It is currently trading over its 20/50/200 moving-day averages. The stock price has made a few attempts over the last year at hitting the $50 per share price point. Over the last month, the stock price is up 19.14% and crossed the $50 mark, making a new 52-week high. The stock price also experiences a lot of downtrend and volatility, mirroring the ups and downs of the oil futures market. The stock has an 81.5% large institutional ownership and trades on par with its current book value.

Valuation and Risk

PBF Energy’s stock price is neither under nor overvalued according to its price per book. The company is undervalued according to its NTM Total Enterprise Value / Revenues ratio of 0.19x. The stock price can trade significantly higher before it is truly overvalued. Current street targets for the company’s stock price range between $50 per share and $62.

The stock price has room to grow, but larger market conditions and energy sector conditions may cause the price to sink before it sets a new uptrend. This week’s Jackson Hole meeting concerning interest rates and future OPEC+ announcements will have a significant impact on the stock price. Although oil and crack prices are predicted to rise through the rest of 2023, it is not certain that they will.

The company has a low risk in terms of a long-term investment. In the short-term, there is moderate to high-risk due to market conditions. Since the stock price is sitting near its 52-week high and since oil contract prices may pull back before rising again, I rate the company as a hold for now. One should look for a dip before opening new positions.

Conclusion

PBF Energy reported strong financial performance for Q2-2023. The 50% partnership in St. Bernard Renewables will bring future synergies for PBF. The company’s stock price has been on the uptrend overall for the last year. The stock may undergo further accumulation and uptrend headed into the winter. The company’s later October Q3-2023 earning report may rally the stock beyond its $50 resistance line and into new all-time highs. The more likely scenario is that the contract price of oil and the company’s stock price will retract before beginning a new uptrend. I rate the company as a hold for now and recommend that investors look for a dip to enter a new position. Meanwhile, one should closely watch this company and its stock.

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