Is it too scary to buy a refiner right now?
Western Refining Inc.
) is trading with a forward P/E of just 4.9 as investors have fled
the refining and energy stocks. Yet this Zacks #1 Rank (Strong Buy)
is still expected to see double digit earnings growth in 2012.
Western Refining is an independent oil refiner that operates four
refineries, two terminals, and four asphalt terminals as well as
retail service stations and convenience stores in Arizona,
Colorado, Texas and New Mexico.
Western also transports petroleum products throughout the
Paying Down Debt
Refiners make money when the crack spreads (the difference between
Brent and WTI) remain elevated. That has been the case so far in
With a strong refining margin environment, Western Refining has
used its extra cash to pay down debt.
On May 31, the company announced it had made a $78.3 million
prepayment on its Term Loan, bringing its year to date repayments
to about $183 million. That is higher than its full year goal of
between $150 and $175 million.
Additionally, it indicated that if the refining margin remains
favorable later in the year, it may make further prepayments.
As of the end of the first quarter, which was Mar 31, 2012, total
debt was $777 million and cash on hand was $374.3 million.
Analysts Are Bullish On 2012
With the crack spreads remaining elevated, the analysts are bullish
6 estimates have risen for 2012 in the last 30 days even though the
company only met the estimate when it reported first quarter
results on May 3. Earnings were 81 cents in Q1 compared to just 27
cents in the year ago quarter.
The 2012 Zacks Consensus Estimate has jumped 23% in the last 2
months to $3.99 from $3.08.
That is earnings growth of 32% as the company only earned $3.03 in
Western Refining Just Keeps Getting Cheaper
Shares rose in early 2012 but since then have been trading in a
narrow trading range as fear has gripped energy investors. Check
out the 6 month see-saw action.
Western Refining continues to be cheap by all metrics.
In addition to a forward P/E under 5, Western Refining has a
price-to-book ratio of 2.3. A P/B ratio under 3.0 usually indicates
Western Refining also has a really low price-to-sales ratio of just
0.2. This is lower than some of its peers, like
) which has a P/S of 0.3. A P/S under 1.0 can mean a company is
Western Refining also rewards shareholders with a dividend yielding
0.8%. This is under its peers such as HollyFrontier, whose dividend
yields 2% and is paying a special dividend with its free cash, but
Western is choosing to pay down the debt instead.
Western Refining is cheap and the elevated crack spreads are
expected to last through 2012. If you're looking for a value stock
in the energy sector with rising earnings estimates, this could be
Tracey Ryniec is the Value Stock Strategist for
. She is also the Editor of the Turnaround Trader and Insider
Trader services. You can follow her on twitter at
WESTERN REFING (WNR): Free Stock Analysis
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