Delek US Holdings, Inc. (NYSE:DK) Downgraded by TD Cowen

We recently compiled the list of the Analysts on Wall Street Lower Ratings for These 10 Stocks. In this article, we are going to take a look at where Delek US Holdings, Inc. (NYSE:DK) stands against the other stocks that received a downgrade from Wall Street analysts. But first, we are going to take a look at what the markets are doing.

Amidst the anticipation surrounding pivotal economic indicators, European futures are on the ascent, signaling a cautious optimism among traders as they prepare for the release of crucial US inflation figures and the Federal Reserve's forthcoming monetary-policy decision. While Asian equities faced a downturn, European stock futures, particularly contracts on the Euro Stoxx 50 Index, exhibited a marginal uptick of 0.2%. Concurrently, treasuries in Asia recorded marginal gains, while Bloomberg's dollar index extended its streak of consecutive advancements.

With Wednesday's release of the US Consumer Price Index (CPI) data and the Fed's policy announcement looming, analysts remain vigilant, mindful of the potential resurgence in market volatility. Despite the backdrop of market uncertainty, Japanese financial institutions continue to command attention from investors, buoyed by their steadfast growth trajectory over the past year. Portfolio manager Junichi Inoue of Janus Henderson Investors underscores the undervalued status of these firms, attributing their appeal to the upward trend in dividend payments. Inoue strategically augmented exposure to Japanese financial entities, which now represent approximately 18.05% of his portfolio. Noteworthy investments include Sumitomo Mitsui Financial Group Inc. and Tokio Marine Holdings Inc. The Janus Henderson Japan Opportunities Fund, under Inoue's stewardship, has notably surpassed the MSCI Japan Index, delivering a commendable 15% return this year.

Meanwhile, in Hong Kong, the property market slump persists, deepening with each passing day and marking a sustained downturn reminiscent of the SARS crisis two decades ago. Bloomberg Intelligence data reveals that real estate values, encompassing both residential and commercial sectors, have collectively plummeted by at least HK$2.1 trillion ($270 billion) since 2019. Projections from UBS Group AG and CBRE Group Inc. forewarn of further declines, underscoring the formidable challenges confronting Hong Kong's real estate sector amidst enduring uncertainty.

Market analysts are viewing Indian Prime Minister Narendra Modi's decision to retain Nirmala Sitharaman as the country's finance minister as a positive indicator of policy consistency, according to reports from Goldman Sachs and Barclays. The reappointment of Sitharaman, alongside the return of other familiar figures from Modi's previous administration, is interpreted as a signal of continuity in government policies. Sitharaman's reappointment comes at a crucial juncture, as she faces the task of navigating fiscal demands within a coalition government framework, following the Bharatiya Janata Party's inability to secure a majority in the elections. Goldman emphasizes the potential benefits of maintaining unchanged ministry positions, suggesting that this continuity could bolster efforts towards implementing reforms. Similarly, Barclays highlights the importance of maintaining focus on infrastructure development and fiscal consolidation, expecting these initiatives to remain central to the government's agenda under Sitharaman's leadership.

Oil prices dipped on Tuesday as cautious investors awaited key U.S. and China Consumer Price Index (CPI) data, alongside the Federal Reserve's policy meeting outcome. According to Reuters, brent crude futures slipped by 13 cents to $81.50 per barrel, while U.S. West Texas Intermediate crude futures edged down by 7 cents to $77.67 per barrel. Monday saw a brief uptick in prices, spurred by optimism surrounding increased fuel demand during the Northern Hemisphere summer vacation season, but analysts warned that this surge might be short-lived, particularly with the looming possibility of higher interest rates. Market strategist Yeap Jun Rong from IG noted that sustained recovery in oil prices may require more conviction, especially with the broader trend leaning towards downside movement since April. Traders remained on edge ahead of China's macroeconomic data release, particularly concerning inflation figures. OANDA senior market analyst Kelvin Wong highlighted the potential impact of China's Producer Price Index (PPI) data on oil prices, expressing concerns over a further slowdown in deflationary trends and its implications for oil demand. Additionally, ongoing Saudi crude exports to China and higher refinery margins provided some support to oil prices. Analysts also pointed to the possibility of the United States increasing crude purchases for its petroleum reserve, particularly if WTI stays below $79 per barrel. Energy Secretary Jennifer Granholm indicated plans to replenish the Strategic Petroleum Reserve, targeting purchases at around $79 per barrel, as maintenance on the stockpile is scheduled for completion by year-end.

In this article we listed 10 companies that were downgraded by analysts and ranked them by the change in their market prices. Negative changes signal that the market participants agree with the analysts’ assessment.

Charts

04. Delek US Holdings, Inc. (NYSE:DK)

Price Reaction after the Downgrade: -0.40(-1.58%)

On June 10, TD Cowen delivered a significant shift in its evaluation of Delek US Holdings, Inc. (NYSE:DK), downgrading the company's rating to a "Sell" classification, projecting a potential downside of 20%. This decision was informed by various factors impacting the company's performance and future prospects within the oil refining industry.

Key concerns highlighted by TD Cowen encompass operational uncertainties and valuation apprehensions. Delek US Holdings, Inc. (NYSE:DK) has encountered challenges, including an EBITDA shortfall attributable to volatility within its Supply & Other segment, coupled with a lack of clarity regarding its buyback strategy. Additionally, the Big Spring refinery's anticipated full operational status by the end of 2024 has not materialized, fostering market skepticism regarding the company's strategic reorganization value. These operational hurdles are further compounded by constrained free cash flow generation under prevailing conditions, thereby constraining the company's capacity to enhance its earnings.

In aggregate, these factors paint a picture suggesting that Delek US Holdings, Inc. (NYSE:DK) may encounter difficulties in achieving significant growth in the immediate future. Consequently, TD Cowen's downgrade and recommendation to sell the stock underscore the challenges facing the company and the perceived limitations on its potential for near-term expansion.

The market response following TD Cowen's downgrade was notable, with Delek US Holdings, Inc. (NYSE:DK) stock price experiencing a decline of 1.58% on June 10, ultimately closing at $24.88. This adjustment reflects investor apprehension regarding the company's outlook and underscores the importance of comprehensive analysis and strategic decision-making within the dynamic oil refining sector.

Maran Capital made the following comment about Delek US Holdings, Inc. (NYSE:DK) in its Q1 2023 investor letter:

“Delek US Holdings, Inc. (NYSE:DK) is a holding company that owns four refineries, about 250 gas stations, and 34.3 million shares of publicly traded Delek Logistics Partners, LP (NYSE: DKL), its captive master limited partnership, which owns a series of oil pipelines and infrastructure assets.

Delek has 67 million shares outstanding and recently traded at $21.50 per share, putting its market cap at just over $1.4 billion. I estimate it has around $300 million in net debt (thought the balance sheet is opaque because DK consolidates DKL’s financials), so its enterprise value is $1.75 billion. What are investors getting for $1.75 billion? Well, for starters, DK’s position in DKL, which recently traded at $48/sh, is worth $1.65 billion. So, the adjusted enterprise value (or “stub value” in special situation parlance), taking into account net debt as well Delek’s DKL position, is approximately $100 million.

The gas stations are likely worth $300-$400 million, based on recent comparable transactions. And I think the refineries could be worth another $1.5 to 2 billion or more ($22- 30/sh), triangulating from a number of valuation approaches. All in, DK appears to be a fifty-cent dollar, with essentially all of its market cap covered by its ownership position in DKL, little debt at the parent company, and significant free cash flow…” (Please click here to read full text)

Overall, DK ranks 4th among the stocks recently downgraded by Wall Street analysts. You can visit Analysts on Wall Street Lower Ratings for These 10 Stocks to see the other stocks that reacted to analyst downgrades. While we acknowledge the potential of DK as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Michael Burry Is Selling These Stocks and Jim Cramer is Recommending These Stocks.

Disclosure: None. This article is originally published at Insider Monkey.