Delek US Holdings just wrapped up its Q1 2024 earnings call, and while the headline numbers are attracting the usual attention, there's a subtle shift in the narrative that seems to have flown under the radar. Delek is not just talking about unlocking "value," they're laying the groundwork for a potential restructuring that could radically alter the company's valuation and reward patient shareholders handsomely.

The clues are scattered throughout the transcript, but they paint a compelling picture. Delek's leadership repeatedly emphasizes "third-party value," "financial strength," and achieving value for both Delek and Delek Logistics (DKL) holders. This isn't the language of a company simply looking to sell off a non-core asset; it's the language of a company preparing for a more fundamental shift in ownership structure.

Let's start with the midstream business, DKL. Delek highlights its robust $400 million plus annual EBITDA run rate, with a remarkable 50% coming from third-party business. This isn't just a legacy dropdown story anymore; DKL is a stand-alone player in the Permian, boasting premier assets like the organically built Midland Gathering System. This system alone gathers 230,000 barrels per day and has a staggering 350,000 dedicated acres locked in until 2030. Add to that the burgeoning Delaware Gathering business and a strategic portfolio of long-haul crude pipelines, and you have a midstream powerhouse waiting to be recognized.

Delek's intentions are crystal clear: "ensuring the right ownership structure to maximize value," evaluating tax implications, and maintaining growth, liquidity, and a healthy leverage profile. The call drops a bombshell: "Our intention to continue highlight the value of our midstream operation is unwavering and we intend to take more constructive steps in the near future." What might these "constructive steps" be?

Here's where the hypothesis gets truly interesting. Delek could be positioning DKL for a full separation through a tax-efficient spin-off. This would unlock DKL's true market value as an independent entity, potentially attracting a higher multiple than it currently enjoys under Delek's umbrella. The proceeds from such a spin-off could be used to further strengthen Delek's balance sheet, fuel aggressive share buybacks, or even special dividends, delivering a windfall for shareholders.

The potential numbers are tantalizing. Comparable midstream companies in the Permian trade at an average EV/EBITDA multiple of around 10x. Applying this multiple to DKL's $400 million EBITDA yields an enterprise value of $4 billion. Assuming a conservative net debt of $1.5 billion post-spin, this implies a market capitalization of $2.5 billion for DKL. This is significantly higher than DKL's current market capitalization, even after the recent improvements to its financial position.

The retail segment also plays a pivotal role in this emerging narrative. Delek has engaged investment bankers to "review strategic opportunities," indicating a potential sale is on the cards. This move, however, may be more about streamlining the Delek portfolio and focusing on its core refining and midstream strengths in preparation for a larger restructuring.

Delek US Holdings: Q1 2024 Financial Performance

Source: Q1 2024 Earnings Call Transcript

DKL: Contribution to Delek US Holdings EBITDA

Source: Q1 2024 Earnings Call Transcript

While analysts are busy dissecting refining margins and OpEx improvements, the real story is much bigger. Delek is quietly assembling the pieces for a potential shareholder bonanza, driven by a strategic reshaping of the company. By separating DKL and potentially divesting the retail segment, Delek could unlock billions in hidden value and usher in an era of enhanced shareholder returns. The market may not have caught on yet, but the clues are there for those willing to look beyond the surface. Delek's quiet giant is stirring, and the rumble could soon be felt across Wall Street.

"Fun Fact: Delek US Holdings is named after the biblical site of Delek, a place known for its abundance and prosperity."