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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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
| 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
| 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
Other ModernGraham posts about related companies
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.
