Today’s news: Delek U.S. Holdings (DK) reports strong fourth quarter and moves from Strong Buy to Hold; Southwest Airlines (LUV) falls on temporary problems.
Delek U.S. Holdings (DK – yield 2.9%) reported fourth quarter adjusted diluted EPS of $1.59 this week, above all analysts’ estimates. Revenue came in on target at $2.4 billion. The surge in profits was largely attributed to higher utilization and lower operating expenses in the refining segment, and cost synergies associated with the 2017 Alon USA acquisition.
Delek increased the quarterly dividend from 26 cents to 27 cents. That sounds boring until you look at the dividend payout history. Delek paid a steady quarterly dividend of 15 cents for many years until the first quarter of 2018, when a dividend increase was announced, followed by three more increases. The company repurchased $365 million of stock in 2018; and expects to repurchase $50 million during the first quarter of 2019.
Delek is a diversified downstream energy company, with businesses that include petroleum refining, transportation, marketing, renewables (producing biodiesel fuel) and asphalt operations.
I’m moving Delek from a Strong Buy to a Hold recommendation while I await adjustments to consensus earnings estimates. The stock is moving rapidly toward short-term price resistance at 40. There’s a decent chance that DK could blow right past 40 and rise as far as 45-47 in the coming weeks. Hold.
Southwest Airlines (LUV – yield 1.2%) issued a press release this week about aircraft maintenance problems that have suspiciously occurred during contract negotiations with their mechanics’ union. Sabotage? Perhaps the mechanics could look for other employment, rather than putting up with what they perceive to be a bad situation. But no, that would be too logical, too proactive. Let’s just harm our employer and all of our clients! Imagine if they worked at a hospital. Would they withhold food and care from their patients over a dispute with their employer? I remember a play from the 1960’s titled, “Stop The World -- I Want To Get Off.” I don’t know what the play was about, but the title pretty much sums up my feelings about the atrocious behavior of some modern-day Americans.
The stock price fell 5% yesterday, compounded by news that the recent government shutdown delayed Southwest’s launch of service to Hawaii, and will hamper this quarter’s revenue expectations. I’m toying with the idea of moving LUV from Hold to Buy, but I want to first review the price action and earnings revisions in the coming days. Hold.