Delek US Holdings (DK): 2Q Preview: Robust Refining Margins and SRE Value Support 20% Total Return

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Delek US Holdings (DK): 2Q Preview: Robust Refining Margins and SRE Value Support 20% Total Return

Goldman Sachs Delek US Holdings (DK)

Key areas of focus heading into quarterly results:

n Capital Allocation. We look for a sustained focus on capital returns during earnings

which we believe reinforces the company’s underlying intrinsic value, as well as

capacity for sustainable cash generation. In our view, DK is well positioned to

generate strong cash flow which we expect will support expanded share

repurchases. This view is underpinned by the company’s balance sheet strength,

growing DKL distributions and the improved refining backdrop. Further, we highlight

the potential for upside risk to our capital return estimates to the extent small

refinery exemptions materialize larger than we underwrite in our estimates. We

believe the upside to be particularly notable amid elevated RIN prices. Beyond

shareholder returns, we monitor for color on capital deployment for self-help

improvements and potential bolt-on M&A at DKL.

n SRE and RIN Monetization. We view DK as a key beneficiary of small refinery

exemptions, where we highlight the potential for up to 100% of compliance waivers

across the portfolio. At current RIN prices, we note full exemptions would unlock

value more than double its initial compliance cost of $468 mn in 2025. Ahead of

September, we anticipate an SRE decision, though are mindful of the potential for a

delay. Additionally, we note the company is still working to address returned vintage

RINs from 2019-2022, which are currently unable to be monetized, while also

awaiting an SRE outcome decision from the EPA for the Krotz Springs refinery in

2024.

n Enterprise Optimization Program (EOP). Heading into the 2Q earnings release, we