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Delek US Holdings, Inc. DK is a key player in the United States’ downstream energy sector, with core operations centered around refining crude oil and managing logistics. The company produces essential fuels such as gasoline, diesel and jet fuel, and handles the infrastructure needed to store and move these products efficiently. With strategically located refineries and strong logistical integration, Delek contributes significantly to the stability of the national fuel supply chain.
Over the past six months, DK has demonstrated strong performance, with its share price climbing 40.8%. This significantly outpaced the gains of the broader Refining and Marketing Oil and Gas sub-industry and the overall Oils and Energy sector, which rose 14.7% and 0.8%, respectively. DK’s outperformance indicates that its solid fundamentals or recent strategic initiatives have played a key role in driving the industry-leading results.
Like many other companies in the energy sector, Delek stock’s performance has been shaped by factors such as crude oil price volatility, fluctuating refining margins and broader market dynamics. Some investors view the company as having promising long-term potential, while others remain cautious due to short-term market challenges.
As the energy sector continues to shift, Delek stays on the radar for those evaluating investment prospects. Its history of ups and downs raises the critical question for investors: Is now the right time to buy in, stay put, or take a more conservative approach? Let us break down the main factors influencing Delek’s current performance to help determine whether it is a good time to invest or if patience might be the wiser strategy.
Resilient Logistics Segment Performance: DK’s logistics segment delivered a record $117 million in adjusted EBITDA in first-quarter 2025, up $9 million sequentially. DKL’s acquisitions, including Gravity Water Midstream and H2O Midstream, are performing well, contributing to strong cash flows. The segment is on track to meet its full-year EBITDA guidance of $480-$520 million, supported by growth in gas processing and water midstream operations. This diversification provides stability amid volatile refining margins.
Improved Refining Operations and Throughput Guidance: The company has completed key turnarounds at Tyler and Big Spring refineries, setting up a strong operational runway for the summer driving season. Second-quarter 2025 throughput guidance is robust (302,000-318,000 bpd), with margin improvements at El Dorado (80 cents/bbl in the first quarter, targeting $2/bbl by mid-year). Higher utilization rates and yield optimizations should drive earnings recovery.
Strategic Positioning in Permian Basin: DK’s midstream assets are well-located in the Permian Basin, benefiting from sour gas gathering and water midstream opportunities. The Libby 2 gas plant is nearing completion, adding processing capacity in a high-growth region. This strategic footprint ensures long-term volume growth and fee-based cash flows.
Seasonal Demand Tailwinds: DK’s Refining margins are expected to improve in second-quarter 2025 due to seasonal gasoline demand and tighter supply conditions. Its refineries are well-positioned to capitalize on higher crack spreads, particularly in the Southwest and Gulf Coast markets.
Management’s Confidence in Long-Term Strategy: CEO Avigal Soreq highlighted DK’s transformational progress, highlighting operational improvements, midstream growth and shareholder-friendly actions. The leadership team’s clear roadmap and execution track record inspire confidence in the company’s ability to navigate cyclical challenges.
Persistent Weakness in Refining Margins: Delek’s refining segment posted an adjusted EBITDA loss of $27.4 million in first-quarter 2025, a sharp decline from $110.1 million in first-quarter 2024, primarily due to lower crack spreads. Benchmark Gulf Coast 5-3-2 cracks fell 29.8% year over year to $16.97/bbl, well below mid-cycle levels. While DK expects seasonal improvements, refining remains highly cyclical and prolonged margin compression could delay profitability recovery.
Additionally, supply-demand imbalances (e.g., new global refining capacity, slower post-pandemic demand recovery) may keep spreads depressed longer than anticipated. If margins fail to rebound in the second half of 2025, DK’s earnings and cash flow could remain under pressure, limiting its ability to deleverage or return capital to shareholders.
Execution Risks in Enterprise Optimization Plan: While management is confident in achieving more than $120 million in annual cash flow improvements from the Enterprise Optimization Plan (“EOP”) by the second half of 2025, this hinges on operational efficiencies, cost cuts and commercial optimizations that may face delays. For example, El Dorado’s $2/bbl margin improvement target relies on catalyst upgrades and yield enhancements, initiatives that could encounter technical setbacks.
Similarly, G&A reductions (down to $50 million quarterly) may plateau, leaving less room for further savings. If EOP benefits materialize more slowly or weakly than expected, DK’s path to sustainable free cash flow could be jeopardized, disappointing investors banking on a near-term turnaround.
Regulatory Uncertainty Around Small Refinery Exemptions: DK is pursuing retroactive Small Refinery Exemptions (SREs) under the Renewable Fuel Standard, which could provide $300 million in financial relief for 2019-2024 compliance costs. However, the EPA’s approval timeline and political risks remain hurdles. While the D.C. Circuit Court overturned prior denials, the Biden administration’s EPA may prioritize biofuel mandates over refinery exemptions. Even if granted, SREs could face legal challenges from biofuel groups, delaying cash inflows. Investors should note that DK’s bullish SRE assumptions are not yet guaranteed and a rejection would force the company to absorb these costs, straining liquidity.
High Capital Intensity and Turnaround Costs: DK spent $136 million on Property, Plant and Equipment and $180 million on acquisitions (Gravity Midstream) in the first quarter, with $72 million allocated to DKL growth projects (e.g., Libby 2 plant). While these investments aim to boost long-term cash flows, they strain near-term liquidity.
Planned turnarounds (e.g., Tyler alkylation unit, Big Spring hydrotreater) also disrupt production and inflate costs — e.g., Big Spring’s outage reduced margins by $1.70/bbl in the first quarter. If future turnarounds run over budget or delay restarts, DK’s earnings and free cash flow could underperform. The company’s 2025 capex guidance leaves little room for error in a weak margin environment.
Vulnerability to Commodity Price Volatility: DK’s refining earnings are heavily exposed to crude oil differentials, crack spreads and RIN prices, all of which are volatile. For instance, WTI crude averaged $71.47/bbl in the first quarter of 2025, down from $77.01/bbl year over year, squeezing margins. A recession or demand slowdown (e.g., from electric vehicle adoption) could further depress refining economics. Additionally, natural gas prices (up 84% year over year to $3.87/MMBtu) raise operating costs. While DK hedges some exposure, it remains susceptible to macro swings that could erase EOP gains. Investors seeking stability may find this unpredictability unappealing.
DK offers both opportunities and risks for investors. On the positive side, its logistics segment is delivering record EBITDA, midstream acquisitions are generating strong cash flows and refinery operations are positioned to benefit from seasonal demand and improved utilization. The company also holds a strategic footprint in the Permian Basin, supporting long-term, fee-based growth.
However, challenges remain, including ongoing weakness in refining margins, execution risks tied to operational improvements and regulatory uncertainty around Small Refinery Exemptions. Additionally, high capital spending and exposure to commodity price volatility could pressure near-term cash flows, making DK a balanced but cautious investment choice.
Given this mix of strengths and potential challenges, investors should consider adopting a hold strategy for now, waiting for a more opportune entry point before adding this stock to their portfolios.
Currently, DK has a Zacks Rank #3 (Hold).
Investors interested in the energy sector might look at some better-ranked stocks like Kodiak Gas Services KGS, which sports a Zacks Rank #1 (Strong Buy), Oceaneering International OII and Arc Resources AETUF, each holding a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Kodiak Gas Services is valued at $2.85 billion and offers contract compression along with related infrastructure services to the U.S. oil and gas sector. Operating through its Contract Services and Other Services segments, Kodiak Gas Services supports natural gas and oil production with fixed-revenue contracts and a range of ancillary services.
Oceaneering International, with a valuation of $2.21 billion, provides engineered services, products and robotic solutions to global markets including offshore energy, defense, aerospace, manufacturing and entertainment. Its offerings include remotely operated vehicles, subsea hardware, pipeline inspection and repair, diving services and digital technologies. Oceaneering International serves multiple segments and supports U.S. government defense and space programs.
Arc Resources, with a valuation of $11.79 billion, is a leading oil and gas company, focused on the exploration, development and production of energy assets predominantly in Western Canada. Founded in 1996, Arc Resources has grown to become one of Canada’s prominent mid-sized energy producers.
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This article originally published on Zacks Investment Research (zacks.com).
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