Tesoro Corporation (TSO), HollyFrontier Corp (HFC), Valero Energy Corporation (VLO): These Three Big Refiners Seem Cheap

Valero Energy Corporation (NYSE:VLO) has a similar EV multiple to Tesoro Corporation (NYSE:TSO). The market values Valero Energy Corporation (NYSE:VLO) at around 3.8 times EV/EBITDA. In the first quarter of 2013, its operating revenue decreased from $35.17 billion in the first quarter of 2012 to $33.45 billion in the same quarter this year, but its operating income improved substantially, from a loss of $244 million to a profit of more than $1 billion. The loss last year was due to $611 million in asset impairment charges of Aruba refinery.

Recently Valero Energy Corporation (NYSE:VLO) spun off its retail business, CST Brands, to focus on refining operations. Valero Energy Corporation (NYSE:VLO) would receive around $500 million in net cash and it still keep around 20% of CST, valued at more than $500 million. After the spin off, its annual G&A expenses are expected to decrease by $50 million per year. The 2012 pro-forma net profit came in at more than $1.9 billion. It has tangible common equity of $16.4 billion while the long-term debt was around $5.4 billion.

My Foolish take

With a cheap EV multiple, all of these refiners look like good businesses to purchase at their current trading prices. HollyFrontier Corp (NYSE:HFC) seems to be the best pick with the highest ROIC at 25.12%, and the highest dividend yield at 2.50%. Tesoro Corporation (NYSE:TSO) could also generate more earnings and EBITDA with BP plc (ADR) (NYSE:BP)’s Carson refinery acquisition. Valero Energy Corporation (NYSE:VLO), with its recent business restructuring and good access to cheap shale oil seems to be a good buy as well.

The article These 3 Big Refiners Seem Cheap originally appeared on Fool.com and is written by Anh Hoang.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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