Buying a share in PBF energy is like : buy one (oil refinery ) get five free ?

“Remember that the stock market is a manic depressive.”

Warren Buffet
  • The Corona Virus Covid 19 and the low oil price shock triggered Mr . Market’s depressive phase.
  • Mr. Market has brought down the price of some oil and energy stocks , well below their intrinsic value.
  • PBF energy owns six high quaity oil refineries including the just recently bought Martinez refinery . PBF bought the Martinez refinery for about one billion dollar.
  • PBF energy stock closed at $ 7.67 on April 24 , 2020. This gives it a market capilitization of just under a billion dollar . In other words Mr. Market is offering the whole company including the six oil refineries at the price of one oil refinery.
  • Buying a share in a company is buying a part of the company. Can we say that its like buy one oil refinery and get five free ? Let’s explore further.
  • An insider and beneficial owner of Pbf energy Carso S.A. De C.V. Inversora is on a buying spree and has bought hundreds of thousands of PBF energy shares in each of the past three months.
Source : PBF Energy

PBF enrgy Profile :

PBF Energy ( Ticker PBF ) is one of the largest independent petroleum refiners and suppliers of unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants and other petroleum products in the United States. PBF currently owns and operates six domestic oil refineries and related assets with a combined processing capacity, known as throughput, of over 1,000,000 bpd, and a weighted average NCI Nelson Complexity Index of 12.8. PBF’s competitor’s refineries have NCI lower than that of PBF. This means PBF owns and operates the most sophisticated refineries of U.S. PBF energy also owns approximately 50 % of the PBF logistics ( Stock symbol PBFX)

Analysis :

PBF operates the most sophisticated oil refineries in U.S. that are capable to produce the most refined products. The refineries are located on the west and east coasts near the largest population hubs Newyork and Los angeles.

Oil refineries profit margins ( industry term crack spread ) go up when the price of oil is low and demand is high. Currently the oil prices are low and the demand is also low. In this environment profits are squeezed because the refineries are operating at less than their rated capacities. If they run at very low capacity ( industry term low throughput ) they may even loose money. The oil demand is low mainly due to Covid 19 lockdowns , social distances etc. Once an effective vaccine comes in the market say early next year oil demand would go up sharply and the refineries are going to make lot of money. The PBF enrgy owns approximately 50 % of PBF logistics which in current enviornment give the company huge advantage because PBF logistics owns storage fascilities which are in high demand.

Th PBF stock was trading around 33 in January and is currently tarding around 8.0 . The stock has already come up from its 52 week low of 5.19. As mentioned above an insider and beneficial owner of Pbf energy Carso S.A. De C.V. Inversora is on a buying spree and has bought hundreds of thousands of PBF energy shares in each of the past three months. His buying price ranges from 6.63 to 28.87. Approximately 80 percent of his buying was at prices well above the current price.

In my opion its earning per share in 5 years will go up to around 6 and at a very modest P/E ratio of 10 will take the stock to 60. And if the Mr Market is in a good mode the company will be assigned a P/E multiple of 15 or higher and stock price may go upto 90 or 100 . In Peter Lynch’s favourite term it will be a ten bagger meaning that the stock will go up ten times the current price.

Off course things can go wrong , long persisting low oil demand may result in huge losses for the company . Th PBF energy has suspended dividend to preserve cash . The company has sold five operating Hydrogen plants for about 500 Million dollars. Company has significant debts and its debt to equity ration was .79 in Dec. 2019 , which is better than most oil & gas companies. The company’s book value is estimated $26 per share. The title statement ‘buy one get five free’ would be an over simplification because its based on the assumption that company’s assets other than refineries would cover the approximately 2 billion dollar long term debt. Still from the above analysis its evident that the company is grossly undervalued.

Whats your opion about this stock ?

Disclaimer : Investors are advised to do deligent research before making a decision to take any position in this stock. I am not a financial expert , please consider this article informative and a pointer : Look there may be a huge opportunity in this stock.

Author: Nadeem Aslam

I am an Engineer by Training. Have worked for different airlines as a flight crew ( Flight Engineer ). I have travelled a lot. I experienced living in different countries , Japan, Pakistan, U.K. and Canada. About me I was based in Japan in 1990's many of my colleagues were American and almost all of them were investing in American stocks. In fact they founded an investment club. I joined the club , we shared the knowledge and the books , magazines and other material. I have been investing since then. What is the Stocks , Finance and Beond ? The blog is to share the knowledge and my investment experience. Many of my friends and relatives ask me how to invest in stocks , about mutual funds etc.etc. I answer their questions and then one day I decided to share with every one who may be interested. I chose the name stocks , finance and beyond to include wide ranging topics such as saving , investing , personnel finance philanthropy. So that's how I came up with

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