This Mid Cap Energy Stock is a 10-Bagger...And May Not Be Done

Key Points

• PBF Energy Inc. announces third quarter results next week.
• Oil refining accounts for 99% of PBF Energy's revenue.
• PBF Energy is benefitting from a greater need for refined oil products like gasoline and diesel.
• The last five sell-side research opinions on PBF Energy have been bullish.

Two years ago, little-known PBF Energy Inc. (NYSE: PBF) slid to an all-time intraday low of $4.06. Today, the stock trades around $40. Despite a brief visit to penny stock land, it hasn’t incurred a reverse split.

After crushing the consensus earnings estimate in Q2, the company is getting set to announce third-quarter results next week. Could we be in store for another magical performance?

To put things in perspective, a year ago PBF Energy eked out a penny per share profit. Wall Street’s 2022 Q3 EPS forecast of $6.76 highlights the remarkable turnaround in the business—and may prove overly conservative yet again.

Let’s ‘dig in’ to what PBF Energy does, why it's winning, and why it could continue to raise eyebrows.

What Does PBF Energy Do?

PBF Energy operates six oil refineries across six states — two in California and one each in Delaware, Louisiana, New Jersey and Ohio. Together, the owned assets process approximately one million barrels per day (bpd). 

The company also owns about 48% of PBF Logistics, a master limited partnership it formed to develop crude and refined petroleum products, terminals, pipelines and storage facilities. Oil refining, however, is the lifeblood of the business, accounting for 99% of revenue.

Although it is the only oil refiner in the small cap S&P 600 index, PBF Energy’s impressive run has seen its market cap swell to $4.9 billion — which technically makes it a mid-cap. Only four S&P 600 constituents currently have a higher market cap. This makes PBF a good candidate to be ‘promoted’ to the mid-cap S&P 400, a possible near-term catalyst for the stock.

Why is PBF Energy Stock Performing So Well?

PBF Energy is benefitting from a greater need for refined oil products like gasoline and diesel. As global fuel demand recovered to pre-Covid levels, the company was able to keep up with demand while many peers could not. This relates to PBF Energy’s above-industry capacity, more complex infrastructure and ability to produce higher grade and lighter refined crude products.

Last quarter, PBF Energy delivered EPS of $10.58 that trounced Wall Street’s $7.85 forecast. It also marked an astounding reversal from the prior year period when the company posted a $1.26 per share loss. Crude oil and feedstock volumes jumped to 942 million bpd led by PBF’s East Coast refineries. These figures, along with a huge gross margin improvement, have helped drive the stock back to the $40 level after it dipped below $30.

Simply put, when fuel demand rises, more crude oil enters the market enabling refiners to access more of the commodity needed to generate their products. With the market increasingly braced for a recession, it remains to be seen how much demand (and refiners’ sales) will suffer.

Is it Too Late to Buy PBF Energy Stock?

PBF Energy’s financial results are expected to moderate from the hyper growth of the last couple years. By mid-2023 the Street expects year-over-year comparisons will be impossible to match. For all of next year, the consensus revenue estimate implies a 13% dropoff from 2022. This doesn’t mean the stock can’t keep moving higher.

For starters, PBF Energy was clobbered so much during the early pandemic that even after a 10x run, it remains undervalued. Based on the 2023 consensus earnings estimate, the stock has a 5x forward P/E ratio. The S&P 500 is trading at 15x next year’s EPS forecast. PBF Energy’s trailing P/E is a laughable 3x. 

On pace to finish higher for the 10th time in eleven months, the refiner has serious momentum that’ll be hard to slow. With energy the only winning sector this year, investors will likely continue to ride the stock even with an inevitable slowdown ahead.

A potential source of longer-term outperformance is the company’s Chalmette refinery located outside of New Orleans. Here it has embarked on a renewable diesel fuel project that is slated to be a significant contributor to the world’s production of sustainable biofuels. With management expecting production to commence in the first half of 2023, PBF Energy will soon have a new growth area to diversify revenue.

The last five sell-side research opinions on PBF Energy have been bullish. Earlier this month, Piper Sandler reiterated its buy rating and raised its price target to a Street-high $53. If the firm is right, this 10-bagger would be refined to a 12-bagger.