HF Sinclair Corp. (DINO): Continue to See Stock Trading at Attractive Discount to SOTP Value; $114 Price Target, Buy

Research evidence excerpt

HF Sinclair Corp. (DINO): Continue to See Stock Trading at Attractive Discount to SOTP Value; $114 Price Target, Buy

Goldman Sachs HF Sinclair Corp. (DINO)

project remains on track for a September start-up. We note the turnaround project

is expected to (a) enhance operational reliability, (b) improve product yields, and (c)

enable an additional 10 kbpd of heavy crude processing within the refinery’s

feedstock slate.

n We note the company provided further color around DINO’s plans to pursue a

separation of its lubricants & specialties business, creating a new independent

public company. During the call, the company highlighted that two separate

companies will benefit from (a) enhanced strategic focus, (b) improved operational

agility, (c) greater alignment of capital deployment, and (d) greater flexibility to

pursue strategic transactions without competing for resources within a broader

portfolio. In addition, management expects the capital intensity and net working

capital for Lubricants to be materially lower following the retirement of the

Mississauga base oil refinery, ultimately contributing to free cash flow improvement

for the business. We also note DINO anticipates the transaction will be tax efficient

for HF Sinclair shareholders and will be completed over the next 12-18 months. With

that said, in the near-term, the company expects to take full advantage of the

constructive margin backdrop which management attributed to stable demand and

limited supply given ~20% of the world’s Group III base oil production is offline.

n On capital allocation, management remains unchanged in its approach focusing

on balance sheet strength, capital returns, and opportunistic M&A. We highlight

the company repurchased $179 mn in shares during the quarter (vs GS estimate of