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PBF Energy Rallies 20.1% on Capex Cut & $530M Divestments

Zacks Equity Research

PBF Energy Inc PBF recently announced a reduction of 35% or $240 million in capital expenditures from its original 2020 guidance. Moreover, the company intends to lower operating expenses and suspend dividend payments in order to navigate through the current market uncertainty. Also, it announced an asset sale. Following these updates, the stock jumped 20.1% yesterday.

Cost Management

Along with the capex cut, the company aims to decrease its operating costs by $125 million through trimming of discretionary activities and third-party services. Moreover, PBF Energy is eyeing a $20-million per annum decline in corporate overhead costs through salary cutbacks.

The cost-containing moves are expected to boost its bottom line in the coming quarters. The Zacks Consensus Estimate for earnings per share is pegged at $2.85 for 2020, indicating more than 200% rise from the year-ago reported figure. Notably, the company managed to curb its 2019 total costs and expenses by more than 11% year over year to $23,859.2 million due to its cost-controlling efforts.

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Balance Sheet Strengthening

The company also deferred its dividend payments of 30 cents per share, which will likely save it worth $35 million cash every quarter. This strategic action is expected to strengthen its balance sheet in these turbulent times. Notably, as of Dec 31, 2019, the company had cash and cash equivalents of $814.9 million along with total debt of $2,064.9 million. The company’s cash-holding efforts are crucial as these can slim the chances of tapping its revolving credit facility.

Divestment

PBF Energy recently agreed to divest its five hydrogen steam methane reformer plants to Air Products and Chemicals, Inc. APD for $530 million in cash. The acquirer will supply hydrogen from these facilities to PBF Energy’s refineries. The transaction is expected to close in April and boost PBF Energy’s cash position.

Throughput Guidance

The company ramped down operations at its refineries to their minimum rates with a view to comply with the weak demand growth outlook. This will likely induce a throughput reduction of almost 30% from its prior expectations. Notably, PBF Energy originally projected total daily throughput volumes for 2020 from the East Coast in the range of 350,000-370,000 barrels while the same from the Mid-Continent was anticipated in the band of 135,000-145,000 barrels. Total daily throughput volumes at the Gulf Coast were estimated in the 180,000-190,000 barrels bracket while the same from the West Coast was predicted within 290,000-310,000 barrels. The company now looks to adjust its operations in tandem the market demand.

Price Performance

This stock has lost 75.5% year to date compared with 54.2% decline of the industry it belongs to.

Zacks Rank & Stocks to Consider

PBF Energy currently has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the energy sector are Murphy USA Inc. MUSA and RGC Resources, Inc. RGCO, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA’s bottom line for 2020 is expected to rise 7.7% year over year.

RGC Resources’ current-year bottom line is expected to improve 14.8% year over year.

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Air Products and Chemicals, Inc. (APD) : Free Stock Analysis Report
 
PBF Energy Inc. (PBF) : Free Stock Analysis Report
 
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
 
RGC Resources Inc. (RGCO) : Free Stock Analysis Report
 
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