Energy downstream operator
Western Refining Inc.
) has announced plans to buy back $200 million of its common
stock. This program is over and above the ongoing share
repurchase scheme of $200 million, which was approved by the
Board of Directors in Jul 2012. Under the previous authorization,
the company has already spent roughly $199.5 million to buy back
some 6.77 million shares of its common stock through Apr 5,
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WESTERN REFING (WNR): Free Stock Analysis
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As of now, Western refining has about 87.6 million shares
outstanding. A share repurchase at the company would lead to a
lesser number of outstanding shares, escalating its earnings per
share ratio, even if profits remain the same.
We believe the new buyback plan not only highlights the oil
refiner's commitment to create value for shareholders but also
underlines the confidence in its cash generating abilities.
Western Refining is one the largest independent oil refiners in
the U.S. with a combined crude oil processing capacity of
approximately 151,000 barrels per day. A major advantage for the
company is its proprietary access to pipelines, which inhibits
lower-cost competitors from supplying Western Refining's key
In particular, Western Refining's easy access to the lower-priced
West Texas Intermediate (WTI) crude gives a cost advantage that
is reflected in the company's high gross margins vis-à-vis its
Further, we believe that the company has done a very impressive
job at reducing its leverage. Having made debt reduction a
priority - which reflects a supportive financial policy - Western
Refining management was able to trim total debt by more than $550
million during the last four quarters.
However, we think that the current valuation is fair and
adequately reflects the downstream operator's future growth
prospects. Western Refining is also faced with volatile industry
fundamentals and limited geographic diversification, which may
further limit its ability to generate positive earnings
Western Refining currently carries a Zacks Rank #3 (Hold),
implying that it is expected to perform in line with the broader
U.S. equity market over the next one to three months.
Meanwhile, one can look at
Range Resources Corp.
Stone Energy Corp.
) as good buying opportunities. These North American energy
explorers - sporting a Zacks Rank #1 (Strong Buy) - have solid
secular growth stories with potential to rise significantly from