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Saturday, January 19, 2019

Western Refining Inc. Valuation – October 2015 Update $WNR


Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Western Refining Inc. (WNR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Western Refining, Inc. (Western) is an independent crude oil refiner and marketer of refined products. The Company operates through four business segments: refining, Northern Tier Energy LP (NTI), Western Refining Logistics, LP (WNRL) and retail. The Company’s refining segment owns and operates two refineries in the Southwest that process crude oil and other feedstocks primarily into gasoline, diesel fuel, jet fuel and asphalt. The NTI segment owns and operates refining and transportation assets and operates and supports retail convenience stores primarily in the Upper Great Plains region of the United States. The WNRL segment owns and operates terminal, storage, transportation and provides related services primarily to its refining segment in the Southwest. The retail segment operates retail convenience stores and unmanned commercial fleet fueling locations located in the Southwest. The retail convenience stores sell gasoline, diesel fuel and convenience store merchandise.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of WNR – October 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,980,098,464 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.04 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 64.12% Pass
6. Moderate PEmg Ratio PEmg < 20 10.45 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.12 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.04 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.50 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

WNR value Chart October 2015

EPSmg $3.98
MG Growth Estimate 15.00%
MG Value $153.41
Opinion Undervalued
MG Value based on 3% Growth $57.78
MG Value based on 0% Growth $33.87
Market Implied Growth Rate 0.98%
Current Price $41.64
% of Intrinsic Value 27.14%

Western Refining Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years as well as the inconsistent dividend record.  The Enterprising Investor is only concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $0.13 in 2011 to an estimated gain of $3.98 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.98% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Western Refining Inc. (WNR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

WNR Charts October 2015

Net Current Asset Value (NCAV) -$27.11
Graham Number $34.85
PEmg 10.45
Current Ratio 2.04
PB Ratio 3.12
Dividend Yield 2.88%
Number of Consecutive Years of Dividend Growth 4

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $2,084,182,000
Total Current Liabilities $1,020,961,000
Long-Term Debt $1,592,137,000
Total Assets $5,953,549,000
Intangible Assets $1,374,427,000
Total Liabilities $4,676,994,000
Shares Outstanding (Diluted Average) 95,626,000

Earnings Per Share History

Next Fiscal Year Estimate $4.04
Dec14 $5.61
Dec13 $2.79
Dec12 $3.71
Dec11 $1.34
Dec10 -$0.19
Dec09 -$4.43
Dec08 $0.94
Dec07 $3.53
Dec06 $3.11

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.98
Dec14 $3.52
Dec13 $1.87
Dec12 $1.03
Dec11 -$0.13
Dec10 -$0.38
Dec09 -$0.11
Dec08 $1.88
Dec07 $2.01
Dec06 $1.04

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Enterprising Investor – October 2015
10 Companies Benjamin Graham Would Invest In Today – September 2015
The Best Companies of the Oil & Gas Industry – August 2015
10 Low PE Stocks for the Enterprising Investor – August 2015
The 16 Best Stocks For Value Investors This Week – 8/1/15

Other ModernGraham posts about related companies

Valero Energy Corporation Valuation – October 2015 Update $VLO
Schlumberger Limited Valuation – October 2015 Update $SLB
National Oilwell Varco Inc. Valuation – October 2015 Update $NOV
Tesoro Corporation Analysis – October 2015 Update $TSO
Cameron International Company Analysis – September 2015 Update $CAM
Halliburton Company Analysis – September 2015 Update $HAL
Kinder Morgan Inc. Analysis – September 2015 Update $KMI
Range Resources Corporation Analysis – August 2015 Update $RRC
Helmerich & Payne Inc. Analysis – August 2015 Update $HP
FMC Technologies Inc. Analysis – August 2015 Update $FTI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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