HF Sinclair Q4 Results Disappoint Market Despite Big Jump and Dividend Increase; Shares Undervalued

HF Sinclair reported a large increase in fourth-quarter earnings from the year before, but fell short of market expectations on weaker-than-expected West Coast refining results and disappointing operational performance in the renewables segment. Adjusted income of $597.8 million in the fourth quarter improved from an adjusted loss of $17.6 million a year ago thanks to a strong refining market. Full-year 2022 adjusted earnings amounted to $3.0 billion compared with an adjusted income of $250.1 million the year before. On the back of this strong 2022 performance, HF Sinclair increased the dividend $0.05 to $0.45 per share. During the quarter it also repurchased $394.7 million in shares. For the full year, it returned $1.6 billion in dividends and buybacks, far exceeding its post-Sinclair acquisition target of $1 billion for 2022. While avoiding specific guidance on its repurchase pace, management continues to target a 50% payout ratio of adjusted net income. Our $63 fair value estimate and narrow moat rating are unchanged, leaving HF Sinclair the cheapest refiner in our coverage.