Delek US: A Contrarian's Gem in Energy Infrastructure

The energy sector has long been a battleground for contrarian investors—areas where misunderstood fundamentals or temporary setbacks create opportunities. Delek US Holdings, Inc. (NYSE: DK), recently excluded from the Russell 3000E Value Index, now presents such a scenario. Despite headwinds in refining, the company's robust logistics segment, shareholder-friendly actions, and a valuation gap suggest it's ripe for a rebound. Let's dissect why DK's exclusion could mark a buying opportunity.

The Index Exclusion: A Catalyst in Disguise?

Delek US's removal from the Russell 3000E Value Index, while likely tied to its declining market cap or shifting sector dynamics, has created a valuation disconnect. Index exclusion often triggers passive selling by funds tracking the benchmark, pressuring the stock. However, this temporary pain may mask long-term value.

The company's stock has risen 35.4% over the past three months (as of Q1 2025), suggesting underlying investor confidence. Even with a reported net loss of $172.7 million in Q1, adjusted EBITDA of $26.5 million and a $623.8 million cash balance highlight liquidity strength. The real story lies in its logistics segment, which posted $116.5 million in adjusted EBITDA, up sharply from $96.8 million in 2024. This growth, driven by recent acquisitions like Gravity Water Midstream, underscores Delek US's pivot toward higher-margin, fee-based infrastructure.

The Logistics Play: A Steady Engine Amid Volatility

The refining segment's struggles—marked by a $27.4 million adjusted EBITDA loss—have overshadowed the logistics division's resilience. Delek Logistics Partners (DKL), now 63.4%-owned by Delek US, has seen third-party revenue rise to 80% of EBITDA, reducing reliance on affiliate contracts. This diversification, paired with $250 million in enhanced liquidity from intercompany agreements, positions logistics as a cash-generating anchor.

The Enterprise Optimization Plan (EOP), targeting $120 million in annualized cash flow improvements by late 2025, further bolsters this thesis. Cost-cutting and asset rationalization are critical in a sector where refining margins remain volatile.

Share Buybacks and Dividends: Voting with the Wallet

Delek US's commitment to shareholders is clear: in Q1 2025, it repurchased $32 million of its stock and paid $15.9 million in dividends. With $562 million remaining under its buyback authorization, the company is signaling confidence in its valuation. At a current price of $21.00, DK trades at a 52-week low of $11.03 and a high of $25.68, offering a 35% upside to resistors of energy infrastructure.

Contrarian Value: The Case for Long-Term Gains

The contrarian edge here lies in the market's myopic focus on refining losses while ignoring logistics' growth and the EOP's potential. At a $1.3 billion market cap, Delek US's assets—spanning refining, terminals, and pipelines—appear undervalued. Even with $2.4 billion in net debt (excluding DKL), its liquidity and EBITDA trajectory suggest manageable leverage.

Analysts remain mixed, with 42% “Buy” ratings versus 47% “Hold”, but technicals are bearish. However, this creates a contrarian sweet spot: a SELL signal in the short term could mean a deeper dip to accumulate shares at cheaper levels.

Risks and Considerations

The refining segment's reliance on crack spreads—already strained—remains a wildcard. Additionally, the exclusion from Russell indexes could lead to continued outflows until Delek US's market cap recovers. A prolonged downturn in crude demand or regulatory headwinds could also pressure margins.

Investment Thesis

For long-term investors, Delek US offers a rare combination: a debt-fueled buyback, a logistics division with secular tailwinds, and a valuation that doesn't reflect its asset base. The EOP's $120 million cash flow target alone could justify a re-rating.

Actionable Advice:
- Buy the dip: Use weakness post-exclusion to accumulate DK shares, targeting a price near $18.
- Set a stop-loss: Below $15 to avoid prolonged refining headwinds.
- Hold for 1–2 years: Capitalize on logistics growth and EOP execution.

In a sector where infrastructure plays like Kinder Morgan (KMI) and Enterprise Products Partners (EPD) dominate, Delek US's exclusion is an anomaly. It's a chance to own a logistics-driven asset at a discount—before the market catches up.

Final Take: Delek US's exclusion from the Russell 3000E Value Index is a contrarian's gift. With a logistics engine firing on all cylinders and a shareholder-friendly strategy, DK is a diamond in the rough for patient investors.