PBF Energy Inc (PBF): Is It Time to Buy This Under-the-Radar Refiner?

I’ve been following refining outfit PBF Energy Inc (NYSE:PBF) pretty closely since its IPO in December. I’ll be very honest: I like this company. However, its fourth-quarter earnings were an incomplete picture, given it had spent all of two weeks as a public company, and I’ve been waiting for its first-quarter results to see how public status is treating PBF Energy Inc (NYSE:PBF), and how it is faring in the market overall. Today I’ll look at how things panned out, and whether or not this refiner is all it’s cracked up to be. (There will be no more refining puns.)

Q1 results
PBF Energy Inc (NYSE:PBF) reported strong first-quarter results, including a dramatic turnaround in operating income. The refiner recorded $100 million, compared to a loss of $164 million last year. Adjusted net income came in at $46.7 million, compared to a loss of $122.6 million in 2012.

Despite this, management was still disappointed in earnings, citing down-time at its Toledo facility because of a fire as one reason, and the rising cost of ethanol credits as another. PBF Energy Inc (NYSE:PBF) estimated the drag on EBITDA from these two factors was more than $90 million.

The other important thing to note, obviously, is margin. Gross margin averaged $9.13 per barrel, breaking out by region to $19.50 per mid-continent barrel and $5.14 per East Coast barrel. The East Coast market is known to be the bane of the refining industry, and we can see that clearly when we compare Valero Energy Corporation (NYSE:VLO)‘s higher system-wide average price of $10.59 per barrel.

PBF Energy Inc (NYSE:PBF) even had a higher mid-continent price per barrel than Valero Energy Corporation (NYSE:VLO), who recorded $17.41, but it was not enough to overcome the East Coast price. For the record, both companies were blown away by mid-continent refiner HollyFrontier Corp (NYSE:HFC) , which recorded gross margin of $23.32 per barrel.

Looking ahead
PBF Energy Inc (NYSE:PBF) anticipates doubling its budgeted spending on those troublesome ethanol credits, known as RINS, from $60 million to $120 million, but it also expects to recoup a significant portion of that in higher fuel costs. That is more or less a non-issue as far as I’m concerned. What I am more focused on is the East Coast margin story, so let’s take a closer look at that.