Holly Energy Partners, L.P. (HEP)

HollyFrontier Corporation HFC has been executing its strategies well to boost business growth and maximize returns to its shareholders. To this end, it announced that it will build a renewable diesel unit (RDU) at its Artesia refinery in New Mexico.

In line with this plan, the company intends to increase its shareholders’ funds by raising its regular dividend. Further, the company initiated a new $1-billion stock repurchase program, substituting all the existing share buyback authorizations of which nearly $281 million was remaining.

For meeting the buoyancy in demand for low carbon-fuels, the company aims to construct an RDU, which together with rail infrastructure and storage tanks, is projected to incur a $350-million capital expense. The construction of the RDU with production capacity of 125 million gallons per year will be backed by cash in hand and is estimated to be complete by early 2022. The unit, apart from aiding HollyFrontier to increase the supply of low-carbon fuels, will also cover the expenses associated with the company’s annual RIN purchase obligation.

The Press Release news headline misrepresents what HEP said IMO.
Press Stories "HEP expects to hold the quarterly distribution constant at $0.6725 per unit, or $2.69 on an annualized basis while maintaining a distribution coverage ratio of 1.0x"

George Damiris, Chief Executive Officer "With our largest re-contracting risk behind us, ....... with a distribution coverage ratio AT OR ABOVE 1.0x. As the recently announced Cushing Connect joint venture shows, we continue to generate NEW REVENUE opportunities for HEP and we are optimistic about new alternatives for our assets not contractually renewed by Delek."

I'm not saying they are going to $30, but this notion they are just barely getting by is BS. Mr. Dimiris CLEARLY states AT OR ABOVE 1.0 and with is confidence in new Rev. Streams back filling Delek, it won't surprise me if next summer we end up getting a distribution increase after all. HEP is just being super conservative and letting people know there is NO distribution cut coming for roughly 18 months. 11% yield 18 months I'll take my chances and buy more at anything under 25

I’m cautiously optimistic that in the mid to long-term HEP share price will recover to a significantly higher trading range.

HEP lost about 4% of revenue/profit from the Alon/Delek partial contract renewal based on: http://bit.ly/2VINuaC and the 2018 annual report which states: “For the year ended December 31, 2017, Delek accounted for 8% of the combined revenues of our petroleum product and crude pipelines and of our terminals and truck loading racks,
including revenues we received from Delek under a capacity lease agreement.”

So, what’s a reasonable price for HEP? Based on a $27 starting price (the low-end of 1 YR trading range) the new price would be $25.92. Other than that, everything seems fine and that lost revenue will probably be replaced without a distribution cut. The recent price decline was caused by analyst downgrades due to mistaken debt concerns (Moody’s upgraded HEP debt rating to Ba2 on September 17, 2019), institution(s) unwinding large position(s), and a temporary MLP sector-wide decline (See the AMLP price chart which illustrates this). HEP has always been a highly leveraged company but with high margins and strong revenue and earnings growth has managed to consistently increase dividend payments. With a forward P/E of 11.55 and forward dividend yield of 12.26%, this is a good undervalue entry point. The price may rally as we approach the ex-dividend and earnings release dates at the end of October.

WOW...what a day for HEP. Unchanged with the DOW off 1000......

I read through the earnings transcript again and 2020 looks solid. No big break out, but our Div. is safe for several years IMO.

From the CFO
"Looking to the rest of the year, we're positioned for a good 2020. In terms of commercial risk, we do not have a third-party recontracting event until 2022. Additionally, with a light turnaround year for our largest customer, HollyFrontier, we expect strong volume levels."