PBF Energy Inc. One Of The Best Refining Companies In The US Undervalued
One of the best Refining Companies in the US Undervalued
PBF Energy Inc. (PBF) is one of the largest independent oil refiners in North America.
PBF Energy was founded in 2008 by Tom O’Malley, Matt Lucey, and Tom Nimbley. O’Malley had previously been CEO of Petroplus Holdings, one of Europe’s largest independent refiners. Lucey was a former executive vice president at Petroplus, and Nimbley was Petroplus’ chief operating officer.
The company was originally created to purchase ExxonMobil’s 142,000 barrel-per-day refinery in Delaware City, Delaware. PBF completed the acquisition in 2009 for $220 million, marking its entrance into the refining business. This first acquisition established PBF Energy’s strategy of buying and improving underperforming refining assets.
Over the next few years, PBF expanded by acquiring more refineries:
- In 2010, purchased a shuttered 180,000 barrel-per-day refinery in Paulsboro, New Jersey for $360 million. After restoring operations, PBF became one of the largest independent refiners on the East Coast.
- In 2011, acquired a 170,000 barrel-per-day refinery in Toledo, Ohio, expanding its presence in the Midwest market.
- Purchased a Chalmette, Louisiana refinery that had been shut post-Hurricane Katrina, further growing its geographical footprint.
PBF Energy went public in December 2012, debuting on the New York Stock Exchange and raising $360 million to fund expansion plans.
Over the following years, PBF continued acquiring processing plants and logistics infrastructure on the West Coast, Gulf Coast and East Coast. Its largest purchase was a $1.4 billion acquisition of a 155,000 barrel-per-day refinery in Torrance, California from ExxonMobil in 2016.
Most recently in 2021, PBF acquired the Martinez refinery in California from Royal Dutch Shell for $1.2 billion as well as Shell’s ownership stake in two East Coast refineries.
The company operates six oil refineries with a combined crude oil processing capacity of over 900,000 barrels per day (bpd). PBF’s refineries are located on the East Coast, Gulf Coast, and West Coast of the U.S. Its facilities include:
Delaware City Refinery (Delaware): 190,000 bpd capacity –
Paulsboro Refinery (New Jersey): 180,000 bpd
Toledo Refinery (Ohio): 170,000 bpd
Chalmette Refinery (Louisiana): 190,000 bpd
Torrance Refinery (California): 155,000 bpd
Martinez Refinery (California): 161,000 bpd
PBF generates revenue by processing crude oil into refined products such as gasoline, diesel fuel, jet fuel, petrochemicals, lubricants, and other products which it then sells wholesale to retailers, airlines, asphalt companies, and other commercial/industrial customers.
Financial Performance
PBF has shown improving financial performance over the past few years. For the 9 months ended September 2022, the company generated $29.2 billion in revenue and $2.2 billion in net income, representing increases of 23% and 50% respectively versus the prior year period.
PBF has also strengthened its balance sheet recently, paying down $700 million of debt in 2022. As of Q3 2022, the company had $1.9 billion in cash against debt of only $1.2 billion. Return on equity stands at a healthy 33%.
In 2022, PBF initiated a $1 billion share repurchase program and has bought back $590 million of stock so far. These repurchases will boost EPS going forward.
Competitive Advantage
A key advantage for PBF is its slate of complex refineries focused on running heavier, cheaper crudes. The company has a high Nelson complexity index of over 12, enabling significant flexibility in crude selection. This allows PBF to maximize refining margins in various commodity pricing environments. The company also owns complementary logistics assets like pipelines and storage terminals to lower input costs.
Major competitors are more integrated oil supermajors like Valero, Phillips66 and Marathon with less pure-play refining exposure compared to PBF’s singular downstream focus.
Valuation
Considering that PBF in 2022 has had revenues of more than $46 billion and a net profit of $2.8 billion.
Currently the market is valuing PBF at only $6.3 billion (market capitalization), meaning if it maintains those net income, we can recover our investment in less than 2 years.
Considering also that the last quarter the company declared that it has cash equivalent of 1.9 billion dollars and a total debt of 2,000 million, that is, if the company wanted to it could pay its debt completely.
Many companies are currently valued at 10 times earnings, if we value PBF with this criterion we are talking about 20,000 million dollars, considering that the company has 123 million shares outstanding, the calculated intrinsic value of PBF is $162 per share which gives us a revaluation potential, considering the current price of BPF of 6,300 million dollars, of x3.
We could multiply our investment by 3 times maybe in 2 to 3 years.
Obviously this estimate is considering that the margins remain stable or almost stable.
Refineries are no longer being built in the US, that could work in favor of BPF.
In summary, PBF Energy with its industry-leading refining footprint, much-improved financial position and balance sheet, high capital returns to shareholders via dividends and buybacks, and attractive valuation presents a strong investment case at current levels for patient long-term investors.
Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of La Alquimia de la Inversión as a whole. La Alquimia de la Inversión is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.