By natural intuition, the idea of diversified hydrocarbon energy specialist HF Sinclair (DINO) seems unproductive at best and flirting with obsolescence at worst. Manufacturing and selling products such as gasoline, diesel and jet fuels and specialty lubricant products, HF Sinclair clashes with the broader push for electrification in personal mobility and transportation. Still, investors shouldn’t give up on DINO stock just yet.
Of course, you’ve probably heard that electric vehicles represent the future platform of both domestic and international roadways. Indeed, enterprises like sector stalwart Tesla (TSLA) have demonstrated that EVs represent a viable alternative for combustion-powered vehicles. Look around and you’ll see an increasing number of drivers making the switch, especially as new competitors enter the field, driving down costs for consumers.
However, DINO stock and its peers enjoy surprising relevance. While more people are certainly making the pivot toward EVs, this segment arguably represents the lower-hanging fruit that’s addressable by EV manufacturers. Moving forward, sector players will need to sell to middle-tier customers. That’s where major challenges may start to emerge, which cynically may help lift HF Sinclair.
HF Sinclair Benefits From a Core Economic Reality
Earlier this year, Tesla generated consequential headlines that particularly impacted EV competitors. According to an AP report, price reductions across Tesla’s model lineup forced sector players to respond, leading to major profitability concerns. And Tesla itself did not escape unscathed, with the action cutting into its first-quarter net income.
Notably, analysts pointed out that the EV leader’s average sale price per vehicle fell just over $5,000 in Q1 against the year-ago quarter. At the time, market experts estimated that the average Tesla vehicle sold for $46,850, down from $52,100 a year earlier.
On paper, the slash sounds like a great deal for consumers on the fence. Fundamentally, it’s probably just that – a great deal. However, the question really is, how many folks are actually sitting on the fence?
It’s a point of contention and to my knowledge, no entity has estimated the average acquisition price of all consumer vehicles on U.S. roadways. However, by logical deduction, the total addressable market for EV manufacturers may be more limited than they realize.
According to data provided by S&P Global Mobility, the average age of U.S. vehicles hit a record 12.2 years in 2021. Practically speaking, if drivers at scale were so eager to make the pivot to EVs, you’d expect this average age to decline. However, that’s just not happening. The aforementioned source stated that this year, the average age of passenger vehicles printed another record, 12.5 years.
In fact, the AP reported that because consumers are repelled by high car prices, Americans are holding onto their vehicles for longer than ever. So, even with Tesla’s price cuts and spiked interest among more affluent buyers, the bulk of the U.S. consumer category choose to stick with their combustion cars.
What’s more, even with the broader integration of public charging stations, the vehicles themselves take too long to charge. Here, it’s difficult to ignore the snobbery of certain EV advocates. Sure, the proliferation of charging networks perhaps makes EVs a no-brainer for the urban commuter.
However, not everyone is an urban commuter. And not everyone drives 20 miles a day and has access to home charging. Given the wide diversity of Americans’ driving needs, EV integration still suffers significant challenges.
DINO Stock Offers an Undervalued Opportunity
On the flipside, that’s not to say that HF Sinclair is devoid of any challenges because that would be completely inaccurate. However, DINO stock benefits from the status quo. Primarily, the infrastructure for combustion cars already exists. And because combustion cars still represent the established paradigm, no platform evangelism is required.
Still, because EVs dominate the contemporary political and ideological talking points, relatively few people are willing to conduct an intellectually honest assessment of the EV rollout. Arguably, that’s one of the strongest contrarian catalysts for DINO stock. People expect an out-with-old, in-with-the-new framework. It’s just not that simple, as the above discussion demonstrates.
Enticingly in favor of HF Sinclair, though, the collective bias toward EVs offers quite a deal for DINO stock. Currently, the market prices DINO at a forward earnings multiple of 6.94. Now, the hydrocarbon energy sector features multiple classifications. However, from the lowest average segment forward multiple (integrated oil and gas at 9.44X) to the highest average (oil and gas distribution at 12.79X), the takeaway is the same: HF Sinclair is undervalued.
It's not a “cheap” bargain either. Overall, the company enjoys strong revenue growth. And aside from a hiccup in 2016 and in 2020, HF Sinclair has been consistently profitable. Considering that Americans now have every reason to hold onto their gasoline-burning cars, it’s DINO stock that enjoys a credible, fact-based upside narrative.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
