Actions of HollyFrontier (NYSE: HFC) have gained 14% since early February to almost reach pre-Covid levels in recent months. Lower crude inventory levels coupled with OPEC + restrictions pushed benchmark prices above $ 60 / bbl, which helped cash flow for the entire oil industry. HollyFrontier is an oil refining company with facilities in the Midwest, Southwest and Rocky Mountain regions. According to recent statements, the company reported a throughput of 412 MBJ, with gasoline and diesel fuels accounting for 54% and 34% of total sales, respectively. Considering the ongoing vaccination in major economies and increasing demand, the stock of HFCs has the potential to increase considerably. Our interactive dashboard analysis highlights HollyFrontier’s stock market performance during the current crisis versus that during the 2008 recession.
Timeline of the 2020 crisis so far:
- 12/12/2019: Coronavirus cases first reported in China
- 01/31/2020: WHO declares global health emergency.
- 02/19/2020: Signs of effective containment in China and hopes of monetary easing from major central banks help S&P 500 reach record high
- 03/23/2020: S&P 500 34% drop of the maximum level observed on February 19, as cases of Covid-19 accelerate outside China. Doesn’t help that oil prices collapse in mid-March amid Saudi-led price war
- From 03/24/2020: S&P 500 recovers 88% from lows on March 23, as the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and injects liquidity into the system.
In contrast, here is how HFCs and the broader market behaved during the 2007/2008 crisis.
Timeline of the 2007-08 crisis
- 01/10/2007: Approximate pre-crisis peak of the S&P 500 index
- 09/01/2008 – 10/01/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
- 03/01/2009: Approximate low point of the S&P 500 index
- 01/01/2010: Initial recovery to pre-accelerated decline levels (around 09/01/2008)
HFC Stock’s Performance Against the S&P 500 During the 2007-08 Financial Crisis
HFC inventory fell from levels of around $ 30 in September 2007 to levels of around $ 12 in March 2009 (when markets hit bottom), meaning HFC inventory lost 62% per year. compared to its pre-crisis level. It gained 10% after the 2008 crisis to reach levels of $ 13 in early 2010, aided by rising demand and benchmark prices. In comparison, the S&P 500 index initially fell 51% following the recession before recovering 48% in January 2010.
HFC fundamentals improve as crack spread increases
In 2020, HollyFrontier saw a 36% (year-over-year) drop in revenue due to the pandemic, resulting in a net loss of $ 600 million. However, the company earned $ 458 million in cash from operations supporting dividend payments and capital expenditures. On the operational side, refinery gross margins fell 54% (year-on-year), from $ 16 / b in 2019 to $ 7.30 / b in 2020, as crack spreads fell into negative territory in the summer. latest. Subsequently, the net operating margin fell 87% (year-on-year) as refinery operating expenses remained relatively stable during times of declining demand. Notably, the company reported a net operating margin of just $ 1.24 / bbl in 2020. The refinery gross margin represents the difference between the average selling price and the average cost per barrel. The net operating margin is the difference between the gross margin of the refinery and the operating expenses of the refinery.
Phases of the Covid-19 crisis:
- Beginning to mid-March 2020: Fear of the rapid spread of the coronavirus epidemic is reflected in reality, the number of cases accelerating in the world
- End of March 2020: social distancing measures + confinements
- April 2020: Fed stimulus suppresses short-term survival anxiety
- May-June 2020: Resumption of demand, with a gradual lifting of confinements – no more panic despite a steady increase in the number of cases
- Since the end of 2020: Weak, but persistent quarterly results demand improvement and advances in vaccine development boost market sentiment
Increasing production of crude oil in the United States and declining inventories indicate growing demand for gasoline and diesel fuel. Thus, HFC stocks are likely to benefit from higher benchmarks and the spread of crack.
Is Exxon Mobil a better choice than HollyFrontier? Check Comparison of Exxon Mobil Shares with Peers to see how XOM stacks up against its peers on the metrics that matter. You can find other useful comparisons at Peer comparisons.
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