Combining the listings on the Nasdaq stock exchange, the New York Stock Exchange (NYSE), and the over-the-counter (OTC) markets, over 12,000 stocks are trading in the U.S. That number is certainly large enough to ensure plenty of promising names go overlooked or underappreciated.
Arguably, that’s the plight of refiner Delek US Holdings (NYSE: DK). At a time when the energy sector and smaller stocks are soaring, Delek, with a market capitalization of just under $3 billion, should be attracting more attention.
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The reality is the stock leads an arguably anonymous existence, which is really odd given its 64% year-to-date gain.
However, it’s not completely ignored. Up more than 13% since May 26, Delek is covered by 13 sell-side analysts, confirming that Wall Street is aware of this stock. That may be a sign Delek’s overlooked status could change in a heartbeat, indicating that astute investors may want to examine the name here and now.
Delek is unique among refiners
Investors experienced with oil stocks know this is an industry where scale matters. That sentiment extends to the downstream space, where companies such as Marathon Petroleum and Valero process millions of barrels per day, well above the 302,000 barrels Delek handles. Said another way, many investors tend to “go big” with refining stocks.
However, there are benefits in Delek’s approach, which some experts describe as “surgical.” The company can make small changes that wouldn’t move the needle at Marathon or a Valero, but are meaningful to a company that’s barely out of small-cap territory. Unveiled in 2022, Delek’s enterprise optimization program “trims fat” by cutting overhead and reducing waste. It doesn’t sound “sexy,” but that effort may be a contributing factor in the stock more than doubling over the past three years.
Delek’s surgical approach bears fruit in other ways. Its first-quarter results confirm as much. Revenue of $2.52 billion was basically in line with what it posted a year earlier, but Delek drummed up a fivefold increase in earnings before interest, taxes, depreciation, and amortization (EBITDA). Translation: Delek’s tactical operating methods fostered significantly higher earnings without needing similarly increasing revenue.