Freedom valued Delek US shares at $86 and assigned a “Hold” rating

High refining profitability and the value of logistics assets support the valuation of Delek US (DK); however, after a strong rally in the stock, the upside potential is limited, Freedom Broker analysts believe. In a report dated October 6, they set a target price of $86 and a “Hold” rating. The target implies a 14.1% gain versus the October 5 close of $75.40.

Delek US operates four refineries in the U.S. with total capacity of 302 thousand barrels per day. The company also owns about 58% of Delek Logistics Partners, which transports and stores feedstock and petroleum products.

Why Freedom recommends holding Delek shares

Over the year through the analysis date, Delek shares rose 134.1%. After such a rise, the upside to the target price is insufficient for a “Buy” recommendation given the stock’s volatility, the analysts note.

Freedom’s valuation consists of the value of the refining business, the stake in Delek Logistics Partners, and interests in joint ventures, net of the associated debt obligations. This approach makes it possible to separately account for the cyclical profits of the refineries and the more stable logistics income.

Refining margins will decline but remain elevated

Freedom expects margins to fall from the peak levels of Q3 2026. At the same time, in 2027 they are expected to remain above the average for the full industry cycle, according to the analysts’ forecast.

Refining margin depends on the spread between the price of petroleum products and the price of crude oil needed to produce them. For the U.S. Gulf Coast benchmark used in Delek’s model, Freedom forecasts $52.39 per barrel in Q4 2026 and $28.89 in 2027. The normalized level from 2028 is estimated at $24.27.

The decline in profitability is reflected in financial forecasts. Freedom expects revenue of $15.4 billion in 2026 and $12 billion in 2027. Adjusted earnings per share, according to the analysts’ calculations, will fall from $16.88 to $3.12.

The logistics business supports the company’s value

Analysts value Delek’s stake in Delek Logistics Partners at about $1.97 billion, or $31.60 per Delek US share. This is a significant portion of the overall target price.

Logistics services provide a more stable income than refining, whose results depend heavily on price conditions. At the same time, deterioration in Delek Logistics Partners’ performance remains one of the risks to the valuation of the entire group.

What could improve Delek’s results

Additional support could come from results of the business optimization program exceeding what is assumed in the forecast. The company is working to improve operating efficiency and reduce costs.

Another possible source of improvement is exemptions for small refineries from renewable fuel obligations. Such requirements involve blending biofuels or purchasing special credits. Exemptions could reduce costs; however, Freedom does not include additional benefits after Q2 2026 in its base forecast.

The main risk is a sharper drop in refining margins. According to the analysts’ calculations, lowering the three margin benchmarks used in the model by $1 per barrel in the period from Q4 2026 through Q3 2027 reduces the valuation by about $4 per share. Other risks include higher costs of complying with biofuel requirements and unplanned refinery outages.

Record refining profits may prove temporary

Earlier, Freedom pointed to a similar situation at Phillips 66. The company benefited from a shortage of petroleum products and high margins, but analysts warned that record quarterly profit should not be extrapolated into a long-term forecast.

Industry conditions are also influenced by supply security. In October, Freedom noted that a reduced threat to shipping through the Red Sea could lead to a correction in oil prices. For Delek, the key remains the relationship between feedstock prices and finished fuels: it is this that will determine how quickly refining profitability returns to normal levels.

This is not an individual investment recommendation.