Why Did Carlos Slim Buy PBF Energy?

Carlos Slim made a splash in a surprising sector last year, choosing to bet big on oil production and refining businesses.

Throughout 2024, the (in)famous investor deployed about $1 billion into the oil market, including a little over $600 million in US refining company PBF Energy (NYSE:PBF).

Why is it about this relatively obscure energy name that has attracted Carlos Slim, and what lessons can investors learn from the magnate’s decision to go into oil at a time when fossil fuels are falling out of favor?

Trading at 0.1x Sales, Did Slim Find a Deal?

A cursory look at PBF’s valuation metrics might give us at least some insights into why Carlos Slim decided to buy it. After selling off by nearly 40% in the last year, PBF now trades at about 0.1x sales, 5.7x earnings and 0.5x book. Every one of those metrics screams this stock is on sale and a compelling deal, if it doesn’t go bankrupt.

This extremely low valuation may be particularly appealing to Slim, even though it has some hallmarks of a value trap to cautious investors. But for Carlos Slim whose investment strategy has often hinged on buying distressed businesses when they’re undervalued, helping to turn them around and then selling them at a profit later on, this might well fall squarely into his playbook.

In fact with PBF selling at only about half its book value, it’s little surprise that the stock would appeal to someone who’s willing to take a risk on business turnarounds.

Why Is PBF Down So Much?

Though valuation likely played a key role in Carlos Slim’s decision to buy PBF, it’s also important to understand how the company arrived at this point of seeming financial distress to trade at such low multiples.

One of the major drivers of PBF’s selloff has been deteriorating revenue. The last quarter of positive revenue growth at PBF was Q1 of 2023. Since then, quarterly revenues have fallen from $9.30 billion to $8.38 billion.

It will come as no surprise to learn that flagging revenues translates to ever poorer net income reports. In Q3 of 2024, PBF posted a negative trailing 12-month net income for the first time since 2021. The loss was a fairly modest one at $292 million for the trailing 12-month period, but it’s still a dramatic reversal from the very positive net incomes the company was posting as recently as a year prior.

Even more concerning is the fact that PBF’s quarterly net incomes have fallen persistently with a net loss of $286 million reported in Q3 alone.

A root cause of these negative trends stems from the current dynamics of the refinery business itself. At the moment, refiners are being forced to pay high crude prices thanks to the ongoing war in Ukraine and the volatile condition of the Middle East.

Demand for refined products is generally low and can be met to a large degree by existing reserves. As a result, refiners are seeing their margins being squeezed by a combination of higher input costs and lower total revenues.

As management noted in the Q3 earnings report, though, the refining business is cyclical in much the same way as other commodity-based businesses. As such, the downturn PBF and other refiners have seen recently isn’t as concerning as it would be in a less cyclical sector.

What is particularly bullish for Slim and others following in his footsteps is that PBF also has a strong balance sheet that will likely help to see it through these tougher times. The company has a cash reserve of about $977 million and total assets of $13.13 billion. Debt, meanwhile, tops out at just $1.25 billion. This leaves PBF in a decent position to ride out the current storm and make new investments for future growth.

Management Buyback + 3.9% Dividend

A key factor that may have influenced Carlos Slim’s decision to buy up so much of PBF is the attractive and elevated dividend yield hovering around 3.9%.

Though this dividend may not be able to grow very much more if PBF can’t turn itself around, Slim will realize a substantial yield on cost in the future if the company undergoes the turnaround he likely predicts.

In the meantime, PBF’s high dividend will likely supply him with a decent amount of cash to invest elsewhere.

What’s perhaps most surprising about PBF right now is the fact that the company is continuing to prioritize returning cash to shareholders despite its current difficulties. In Q3, the company announced a 10% dividend increase and repurchased about $75 million worth of its own shares.

This may well indicate that management shares the belief that PBF is undervalued and is taking advantage of current market prices to concentrate its shares. Luckily, the strength of PBF’s balance sheet allowed it make these decisions without straining its financial position too much.

Why Did Carlos Slim Buy PBF Energy?

PBF Energy is undervalued on the basis of cyclical market conditions with a price-to-sales ratio of just 0.1x. After the stock sold off so much, Slim is likely getting a very good value for his money in PBF given the healthy balance sheet.

The company’s strong cash-to-debt ratio is also allowing it to keep raising dividends and buying back shares, a signal of management’s confidence about the future.

It’s also worth noting that Carlos Slim isn’t the only one who foresees better days ahead for PBF. The average target price for the stock based on 13 standing analyst forecasts is currently $30.23, implying a gain of around 13.9% from the most recent price of $26.55.

Moreover, 95% of PBF is owned by institutional investors whose buying has handily beaten out selling in the last 12 months.

Finally, there may be a bigger lesson about the future of oil in Slim’s choice to buy PBF and other oil stocks. Right now, alternative energy technologies are getting the most enthusiasm from retail investors. Several time-tested pros, however, are still betting big on oil.

Surpassing even Carlos Slim in this department is Warren Buffett, who notably kept buying Occidental Petroleum (NYSE:OXY) in 2024 despite selling shares in many of his other investments.

Though oil will probably phase out quite a bit over the course of this century, it’s still vital to the global economy today. As such, it’s well worth watching the moves of proven value investors like Buffett and Slim as they scoop up good deals on oversold oil stocks.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.