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On Wednesday, Citi upgraded its rating on Delek Logistics Partners, LP (NYSE:DKL) shares from Neutral to Buy, while also raising the price target to $45 from the previous $44. The upgrade comes after Delek Logistics announced strategic updates that Citi believes have not been fully appreciated by the market, presenting an attractive investment opportunity.
According to the firm, Delek Logistics offers a combination of a high yield and growth prospects that place it in the top quartile, with a risk/reward balance that is increasingly favorable. Despite trading at a yield of over 11%, Delek Logistics maintains coverage of approximately 1.3 times and has shown improvements in its balance sheet.
Citi points out that even with the new $45 price target, Delek Logistics would still offer the highest yield among the stocks covered by the firm, at over 9.5%. This, paired with a nearly 10% compound annual growth rate (CAGR) in EBITDA expected over the next three years due to the recent strategic updates, suggests significant potential for upside.
The report from Citi also addresses four common questions and concerns from investors following Delek Logistics' second-quarter earnings, providing further insights into the firm's positive stance on the stock.
In other recent news, Delek Logistics Partners has reported a record second-quarter earnings with an adjusted EBITDA of $102.4 million. The company has announced several strategic transactions aimed at strengthening its market position in the Permian Basin.
These include an extended contract with DK, an investment in a new gas processing plant, and the acquisition of H2O Midstream. The Board of Directors has approved an increase in the quarterly distribution to $1.09 per unit, reflecting the company's strong performance.
The company's leverage has also improved, with a ratio of 3.81 times at the end of the quarter, down from 4.84 at the end of 2022. Looking ahead, the majority of DKL's EBITDA is projected to come from non-related parties by the first half of 2025, making it a mostly independent midstream company. The new gas processing plant is highly subscribed and is expected to generate cash on cash returns of more than 20%, with completion targeted for the first half of 2025.
InvestingPro Insights
Following the optimistic outlook from Citi, data and insights from InvestingPro further support the potential upside for Delek Logistics Partners, LP (NYSE:DKL). The company's dedication to rewarding shareholders is evident, with a high shareholder yield and a track record of raising its dividend for 11 consecutive years, which aligns with Citi's mention of a high yield. Moreover, Delek Logistics has maintained dividend payments for 12 consecutive years, emphasizing its commitment to consistent shareholder returns.
InvestingPro data reveals a robust financial profile for Delek Logistics, with a market capitalization of $1.83 billion and a price-to-earnings (P/E) ratio of 13.29, which adjusts to 12.83 when looking at the last twelve months as of Q2 2024. The company's dividend yield stands at an impressive 11.23%, reinforcing Citi's point about the stock's high yield. Additionally, the firm's revenue growth for the last quarter in Q2 2024 was 7.18%, suggesting a positive trajectory in its financial performance.
For investors seeking more detailed analysis and additional InvestingPro Tips, there are 9 more tips available that delve deeper into Delek Logistics' financial health and market performance. These insights can be found at https://www.investing.com/pro/DKL and may provide further clarity for those considering an investment in the company.
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