The Cheap Refiner for 2013: Western Refining, Inc. (WNR)

Consistent Cash Flow and Stronger Balance Sheet

In the past 5 years, Western Refining has consistently generated positive operating cash flow, from $113 million in 2007 to $508 million in 2011. The free cash flow has increased from -$164 million in 2007 to $424 million in 2011. In the same period, the company has managed to pay down the long-term debt, from $1.57 billion to $500 million. Since the end of 2010, Western Refining has reduced the debt/total capitalization ratio, from 61% to only 33%. As of September 2012, Western Refining had $1 billion in total stockholders’ equity, $510 million in cash and $500 million in long-term debt. In addition, it had $270 million in deferred tax liabilities that were considered an interest free loan from the government.

Peer Comparison

With the current trading price of $36 per share, the total market cap is $3.17 billion. The market is valuing Western Refining at only 3.7x EV/EBITDA. Valero is a much bigger company with $25.27 billion in market cap. With the current trading price of $45.65 per share, Valero is valued at 4.53x EV/EBITDA. Tesoro, with $7.44 billion in market cap, is valued at 3.7x EV multiples. Among the three, Western Refining had the highest operating margin of 9%. The operating margin of Valero, 4%, is the lowest while Tesoro had a 5% operating margin.

Foolish Bottom Line

Western Refining looks cheap even after reaching its 52-week high. With the highest operating margin, cheap EV multiples and stronger balance sheet, investors might consider Western Refining for their portfolios in 2013.

The article The Cheap Refiner for 2013 originally appeared on and is written by Anh HOANG.

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