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Actionable news in WNR: WESTERN REFINING Inc,

Consider Western Refining At An Attractive Price

Summary

In my view, Western will benefit from the acquisition of NTI.

Considering its compelling valuation metrics, WNR's stock, in my opinion, is extremely undervalued, its EV/EBITDA ratio is the second lowest among all Russell 1000 energy stocks.

The company is generating strong free cash flows and returns value to its shareholders by stock buyback and high-yielding dividend.

The average target price of the top analysts is $40, up 36.4% from its March 21 close price, which appears reasonable, in my opinion.

In the last few years, U.S. refining companies have benefited from a high Brent-WTI crude spread, high refining margins due to cheap North American crude oil as feedstock and strong demand for refined products. As a result, their profit has soared and their shares have surged. However, the large Brent-WTI crude spread has vanished because of the U.S. Congress decision on December 18, 2015, to repeal the 40-year ban on exporting U.S. crude oil and shares of refiners have significantly retreated since then, as a consequence. As such, only two refiners stocks among the six leading refining companies that are included in Russell 1000 index have recorded a positive return (including dividend) in the last 52 weeks. Nevertheless, refining companies have shown a significant rebound in the last four weeks, as shown in the table below.

Western Refining (NYSE:WNR) which owns and operates two refineries in the Southwest with a total crude oil throughput capacity of approximately 151,000 barrels per day, has had the worst 52-weeks return among the six leading refining companies. However, Western Refining has the highest dividend yield and the best price to free cash flow ratio among the companies in the group.

On February 25, Western Refining reported its fourth quarter and full year 2015 financial results which missed EPS expectations by $0.13 (18.8%). Revenue for the period was $2.07 billion, lower than Wall Street's expectations of $2.14 billion. The company showed earnings per share surprise in its three previous quarters, as shown in the table below.

In the report, Jeff Stevens, Western's President and Chief Executive Officer, said:

Western had a successful 2015 despite a volatile crude oil pricing environment and challenging fourth quarter. We had good, reliable operations at both the El Paso and Gallup refineries as we increased refinery throughput to record...


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