Refining This CEO’s Growth And Income Buy

Photo by Loïc Manegarium:

Insiders were in more of a buying mood last week than they have been in about two months. Wall Street took a little off the top with some profit taking and some insiders saw it as a buy the dip opportunity.  There were 479 reported transactions compared to 398 the week before.

Execs at companies of all sizes participated in the shopping spree. Insiders at household names like Caterpillar Inc. (CAT), Intel Corporation (INTC), Keurig Dr Pepper Inc. (KDP) and Eli Lilly and Company (LLY) parted with at least five-figures, adding shares of company stock to their portfolios.

There was plenty of seven figure action as well. Insiders bought more than $1 million in American Assets Trust, Inc. (AAT), Artisan Partners Asset Management Inc. (APAM), Amphenol Corporation (APH), Cyclerion Therapeutics, Inc. (CYCN), and TradeUP Global Corporation (TUGCU).

There were plenty to choose from for this week’s highlighted insider buy with purpose. While all of the names above are interesting, we ultimately chose HollyFrontier Corporation (HFC). Inflation is in the air and energy stocks could get a boost.

HollyFrontier Corporation operates as an independent petroleum refiner in the United States. The company operates through three segments: Refining, Lubricants and Specialty Products, and HEP. It primarily produces high-value light products, such as gasoline, diesel and jet fuel, and specialty lubricant products, as well as specialty and modified asphalt.

HFC Director Franklin Myers and Chief Executive Officer (CEO) Michael Jennings bought $346,900 and $262,350 of the refiner stock, respectively. (1) Jennings’ history of buying and selling HollyFrontier is the shiny object that caught our attention.

The CEO has primarily been a seller of company stock, unloading $25,364,612 in stock since 2011, while buying $366,622 during the same timeframe. (2) As noted in the previous paragraph, two-thirds of his buying occurred last week. Jennings’ first HollyFrontier transactions accounted for the difference. He bought twice in late 2011 at $28.03 and $24.11. Then the selling started in 2012 at $34.12 to as much as $72.41.

The CEO’s most recent purchase was at $34.98 and trades at $34.78 as we type. Wall Street has a one-year price target of $40.17. (3) That’s a little more than 15.5% upside potential not including the current dividend yield of 3.96%. Combined, investors could achieve a total return of 19.46% if HollyFrontier’s shares reach Wall Street’s price expectations and management maintains the current, annual dividend payout of $1.40 per share.

The Street’s target of $40.17 could prove to be conservative. Analysts believe the energy company will earn $3.26 per share in 2022. (4) In the last half-decade, HFC traded with a price to earnings (P/E) range of 10.78 on the low side, 51.51 as the high RPM number, and averaged 21.71 times earnings.

If we apply those valuations levels to 2022’s earnings per share (EPS) forecasts, then we arrive at the following potential price tags, $35.14 on the bottom of the range, $167.92 as the max, and $70.77 as the average P/E. Again, those numbers go up when you include the dividend.

Overall: Inflation worries could potentially drive the cost of commodities refined gasoline higher, which would likely benefit the bottom lines for companies like HollyFrontier Corporation (HFC). If the company hits Wall Street’s profit target, HFC recent price to earnings (P/E) history suggests limited downside from its current price level, not including its dividend.

HollyFrontier Corporation could be appropriate for growth and income investors looking to add exposure to the refining market.


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