Electric Transition Will Squeeze Refining Margins And Profitability

Key Takeaways

• Structural decline in gasoline and diesel demand, coupled with regulatory costs, threatens Par Pacific’s core refining profit model and long-term asset value.
  
• Geographic concentration and mounting global competition heighten earnings volatility and risk of stranded assets, challenging sustainable growth and capital returns.
  
• Operational improvements, strategic market positioning, sustainable fuel initiatives, and disciplined capital management are driving more stable earnings and enhancing long-term shareholder value.

Catalysts

Operates as an energy company in the United States.

• The accelerating global transition to electric vehicles and rapid electrification, especially as battery technology advances and governments increase incentives, is likely to trigger a permanent decline in long-term gasoline and diesel demand, directly undermining Par Pacific’s refining volumes, revenue base, and ability to maintain current net earnings levels over the coming decade.
  
• Increasing regulatory pressure and escalating carbon pricing in Par Pacific's core U.S. and Asia-facing markets is expected to drive up compliance and environmental upgrade costs, squeezing net margins and potentially converting assets into stranded liabilities as fossil-fuel-focused operators fall out of policy favor.
  
• Par Pacific’s heavy reliance on U.S. Gulf Coast, Hawaii, and Rocky Mountain markets exposes it acutely to localized economic downturns, natural disasters, and tightening regional environmental policies, introducing outsized earnings and revenue volatility relative to more diversified refining peers.
  
• Intensifying competition and looming overcapacity as new, high-efficiency Asian and Middle Eastern refineries come online are likely to compress refining margins industry-wide, putting sustained pressure on Par Pacific’s profitability and risk of underutilized assets, especially as global demand for petroleum products structurally declines.
  
• Large capital requirements for ongoing environmental compliance, deferred maintenance, and uncertain expansion projects may erode free cash flow and elevate long-term debt risks, amplifying the threat to sustainable earnings growth and putting downward pressure on both return on capital and future shareholder distributions.

Par Pacific Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Par Pacific Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Par Pacific Holdings's revenue will decrease by 8.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -0.8% today to 6.3% in 3 years time.
• The bearish analysts expect earnings to reach $376.4 million (and earnings per share of $3.45) by about July 2028, up from $-60.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 2.6x on those 2028 earnings, up from -28.0x today. This future PE is lower than the current PE for the US Oil and Gas industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.72%, as per the Simply Wall St company report.

Par Pacific Holdings Future Earnings Per Share Growth

Risks

• The company is nearing completion of major maintenance turnarounds in key refineries, anticipating several years without significant planned outages, which should lead to reduced capital expenditures and higher system throughput, boosting both revenue and net margins in the long term.
  
• Demand across Par Pacific’s niche markets is described as steady to increasing, and strategic positioning in Hawaii and on the West Coast allows the company to benefit from persistent import parities and tight regional market conditions, supporting strong utilization rates and enhanced profitability.
  
• The Sustainable Aviation Fuel (SAF) project in Hawaii is proceeding on schedule with low capital costs and operational synergies, while attracting commercial interest from major airlines; this positions Par Pacific advantageously for regulatory incentives and emerging green fuel demand, supporting future earnings growth and margin resilience.
  
• The company has executed substantial share buybacks and maintains a strong balance sheet with excess liquidity, providing flexibility for opportunistic capital allocation, which can enhance per share earnings power and support long-term shareholder value.
  
• Continued progress on cost reduction initiatives, improved operational efficiency, and business segment diversity have strengthened the structural earnings base of the company, resulting in more durable and stable earnings, which can improve overall financial performance and reduce downside risk to net income.

Valuation

• The assumed bearish price target for Par Pacific Holdings is $19.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Par Pacific Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $38.0, and the most bearish reporting a price target of just $19.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $6.0 billion, earnings will come to $376.4 million, and it would be trading on a PE ratio of 2.6x, assuming you use a discount rate of 7.7%.
• Given the current share price of $32.61, the bearish analyst price target of $19.0 is 71.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.