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Investing.com - Mizuho (NYSE:MFG) initiated coverage on Delek Logistics Partners, LP (NYSE:DKL) with a neutral rating and a $44.00 price target on Thursday. The company, which offers a substantial 10.5% dividend yield and has raised dividends for 12 consecutive years according to InvestingPro, currently trades near its 52-week high of $45.71.
The research firm highlighted DKL’s appealing attributes for midstream investors, including its Permian growth strategy across oil, gas, and water, combined with sustainable double-digit capital return. Mizuho noted that DKL has evolved from an inorganic growth story dependent on asset drop-downs from parent company Delek US to a third-party facing midstream business. With a current P/E ratio of 13.7 and expected revenue growth of 15% for FY2025, InvestingPro analysis suggests the stock is slightly undervalued based on its Fair Value calculations.
Delek US has reduced its ownership stake in DKL to 63%, down from 79% in 2022, according to Mizuho’s analysis. The firm characterized DKL as having a strong fundamental story with sustainable and modestly growing cash distributions.
Despite these positive factors, Mizuho cited several concerns that led to the neutral rating, including uncertainty over medium-term growth in the Permian Basin in a $60 per barrel oil price environment. The firm also pointed to DKL’s lack of scale and downstream integration compared to peers. According to InvestingPro data, DKL maintains a healthy current ratio of 1.61, though its financial health score is rated as ’FAIR’ with particular strength in profitability metrics.
Mizuho additionally mentioned DKL’s moderately higher leverage as a factor that may constrain the company’s valuation as it continues to pursue both organic and inorganic growth initiatives.
In other recent news, Delek Logistics Partners LP reported its Q1 2025 earnings, highlighting significant revenue growth that surpassed forecasts. The company achieved a revenue of $249.93 million, exceeding the anticipated $235.98 million, although it missed earnings per share (EPS) expectations, posting $0.73 against a forecasted $0.84. Despite the EPS miss, Delek Logistics demonstrated strong performance in its Gathering and Processing segment, with revenues rising to $81 million from $50 million in the previous year. In a separate development, Fitch Ratings downgraded Delek Logistics Partners’ Issuer Default Rating to ’B+’ from ’BB-’, citing the alignment of its Standalone Credit Profile with its parent company, Delek US Holdings (NYSE:DK). Fitch noted that Delek Logistics’ leverage is expected to remain between 4.5x and 5x, with a modest Distribution Coverage above 1x. The rating agency emphasized the company’s location-advantaged assets and its efforts to diversify its customer base, while also pointing out high distribution requirements and elevated capital needs. Additionally, the company continues to expand with projects like the Libbey II Gas Plant, which is expected to enhance its competitive position in the Delaware Basin.
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