Par Pacific is Undervalued: Should You Bet on the Stock Now?

Such a discounted valuation often signals an entry point. However, before making investment decisions, one should consider the company's overall business environment and fundamentals.

Flexible Crude Mix Strengthens PARR’s Refining Position

Instead of relying on a single source of crude, PARR has been depending on crude from a variety of sources, comprising U.S. inland oil fields, waterborne sources and Canadian heavy crude.

Notably, a significant portion of crude oil sources is waterborne, while 19% consists of Canadian heavy oil. While exposed to multiple sources, Par Pacific has the option to switch if the price of one crude oil type rises.

Image Source: Par Pacific Holdings

Since it has exposure to Canadian heavy oil, which is cheaper than lighter crude, Par Pacific is likely to be enjoying a cost advantage. In other words, the refining player has been capable of using lower-priced fuel to produce high-value end products, giving it an edge over other refiners and helping it continue its upward trajectory.

PARR’s Refining Margin to Remain Strong

Par Pacific continued to benefit from a strong refining market as it entered the third quarter. Its refining index, which is a rough measure of how profitable it is to turn crude oil into products like gasoline and diesel, was still very high in July at $31.34 per barrel, only slightly below the second-quarter average of about $33. Demand for fuels remained strong, especially on the mainland, while global fuel inventories stayed relatively tight. In simple terms, there was still healthy demand for refined products and limited excess supply, which helped PARR continue earning attractive margins from its refineries.

Looking ahead, PARR appears well-positioned to benefit from still-strong refining margins, firm fuel demand and tight global product inventories. The favorable business environment is also likely to aid refiners like PSX and VLO.

Should You Bet on the Stock?

Investors’ strong preference for the stock is getting reflected in the price chart. In the past year, PARR has jumped 172.7%, outperforming the industry’s 83.4% growth. PSX and VLO have surged 96.9% and 151.7%, respectively, over the same time frame.

Image Source: Zacks Investment Research

Considering the favorable business environment and cheap valuation, it appears to be the ideal time for investors to bet on PARR. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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