Western Refining Inc. Valuation – June 2016 $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 Companies Benjamin Graham Would Invest In Today – March 2016. 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 a crude oil refiner and marketer of refined products. The Company operates through four segments: refining, Northern Tier Energy LP (NTI), Western Refining Logistics, LP (WNRL) and retail. Its refining segment owns and operates over two refineries in the Southwest that process crude oil and other feedstocks into gasoline, diesel fuel, jet fuel and asphalt. Its NTI segment owns and operates refining and transportation assets and operates and supports retail convenience stores in the Upper Great Plains region of the United States. Its WNRL segment owns and operates terminal, storage, transportation and wholesale assets consisting of a fleet of crude oil and refined product truck transports and wholesale petroleum product operations in the Southwest region. WNRL’s primary customer is its refineries in the Southwest. Its retail segment operates retail convenience stores and unmanned commercial fleet fueling locations located in the Southwest.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of WNR – June 2016
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 | $1,839,371,430 | Fail | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.36 | 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 | 21180.00% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 6.57 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.55 | 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 | 2.36 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 1.60 | 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 | $3.13 |
| MG Growth Estimate | 15.00% |
| MG Value | $120.61 |
| Opinion | Undervalued |
| MG Grade | B |
| MG Value based on 3% Growth | $45.42 |
| MG Value based on 0% Growth | $26.63 |
| Market Implied Growth Rate | -0.97% |
| Current Price | $20.57 |
| % of Intrinsic Value | 17.06% |
Western Refining, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.03 in 2012 to an estimated $3.13 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.97% annual earnings loss 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.
Western Refining, Inc. performs fairly well in the ModernGraham grading system, scoring a B.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$29.10 |
| Graham Number | $15.01 |
| PEmg | 6.57 |
| Current Ratio | 2.36 |
| PB Ratio | 1.55 |
| Current Dividend | $1.44 |
| Dividend Yield | 7.00% |
| Number of Consecutive Years of Dividend Growth | 5 |
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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
| Balance Sheet Information | 3/1/2016 |
| Total Current Assets | $1,853,333,000 |
| Total Current Liabilities | $786,682,000 |
| Long-Term Debt | $1,705,782,000 |
| Total Assets | $5,753,762,000 |
| Intangible Assets | $1,374,718,000 |
| Total Liabilities | $4,534,528,000 |
| Shares Outstanding (Diluted Average) | 92,144,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $0.75 |
| Dec2015 | $4.28 |
| Dec2014 | $5.61 |
| Dec2013 | $2.79 |
| Dec2012 | $3.71 |
| Dec2011 | $1.34 |
| Dec2010 | -$0.19 |
| Dec2009 | -$4.43 |
| Dec2008 | $0.95 |
| Dec2007 | $3.53 |
| Dec2006 | $3.11 |
| Dec2005 | $2.94 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $3.13 |
| Dec2015 | $4.06 |
| Dec2014 | $3.52 |
| Dec2013 | $1.87 |
| Dec2012 | $1.03 |
| Dec2011 | -$0.13 |
| Dec2010 | -$0.38 |
| Dec2009 | $0.09 |
| Dec2008 | $2.27 |
| Dec2007 | $2.59 |
| Dec2006 | $1.82 |
| Dec2005 | $0.98 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
Disclaimer:
The author held a long position in Western Refining Inc. but did not hold a position in any other 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.
