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IBleedConcrete (97.45)

Refinery Valuation Smackdown

Recs

5

July 21, 2008 – Comments (4) | RELATED TICKERS: VLO , FTO.DL , TSO

Like many other players, I've been trying and failing to call a bottom for the independent refiners, so I put together a comparison of some of their statistics.

Name (Ticker)      P/E     P/TB   Net Profit Margin   Debt/Equity

Alon (ALJ)           12.5     1.79                       3.1              1.55

Calumet (CLMT)   8.0      1.83                      N/A              1.16

Delek (DK)           6.1      1.08                       2.5                .64

Frontier (FTO)       4.3      1.93                       6.4               .15

Holly (HOC)          5.8      3.31                       5.7               .70             

Sunoco (SUN)      6.3      1.71                       2.5               .71

Tesoro (TSO)        5.1       .85                        2.9               .70          

Valero (VLO)        4.3       1.24                       4.6               .36

Western (WNR)    4.3       1.74                       N/A             1.91

 

The refiners all depend on the crack spread between crude oil and gasoline/other refined products.  Right now the crack spread is very low which is the reason for their precipitous declines.  I can only guess which direction it will go from here, but hoped to find which of the refiners might be a good value under current market conditions.

Surprisingly, the only stock which meets Ben Graham's strict standard is Valero: less than 15 PE, less than 1.5 price/tangible book, less than .50 debt/equity.  But depending on your mindset you might prefer Frontier as the most likely growth stock or Tesoro as the cheapest.  I see nothing in particular to recommend the others.

*P/E (TTM), Price/Tangible Book, 5 Year Average Net Profit Margin, and Total Debt/Equity all taken from the respective CAPS ratios pages.

4 Comments – Post Your Own

#1) On July 21, 2008 at 9:29 PM, colonelnelson (79.79) wrote:

Undoubtedly each of these refiners would be aided by a serious decline in the price of crude, eh?  No wonder they are suffering.

Nevertheless, I still like Valero.  It's been said in CAPS one hundred times, but Valero is unique among the others because of their ability to process sour-grade oil.  

Michael Santoli points out in this week's Barron's that Valero stands to profit from "the recent strength in heating oil and diesel margins."  He also applauds Valero's "management's shrewd capital-allocation and asset-shuffling moves," and believes that "even sideways action in crude would help crack through the gloom" pervading Valero and the other refiners.

Perhaps the bottom is near for these companies, absent another spike in oil. 

Thanks for the analysis, Concrete.  Interesting to see the refiners laid out side-by-side.

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#2) On July 22, 2008 at 12:47 AM, Tastylunch (29.93) wrote:

I wondered if somebody was going to talk about this.

It's hard to say when the bottom will hit for refiners,  They've been sliding it seems for years.

Certainly I got sucked in too early.

I think VLO is the safest play and WNR may be the most risky. I read some reserach on WNR somewhere that suggests they have a major cash problem.

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#3) On July 22, 2008 at 2:24 PM, saunafool (98.66) wrote:

One of the things to note about the refiners is that they are trading at less than the price to build their refineries--classic Benjamin Graham. You couldn't build the assets these companies own for double their equity.

They are clearly value plays, but like most clear values, there is no way to know where the bottom is, nor when the recovery will take place. I think I'm going to go green thumbing soon, however.

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#4) On September 13, 2008 at 7:23 PM, IBleedConcrete (97.45) wrote:

Update: I never ended up buying any of these and in fact gave up my green thumbs on all but my favorites, VLO and FTO.  The recent spike in some refiners is presumably partly because of a bad hurricane season for the Gulf Coast.  VLO has rebounded much less strongly than the others so I think it could still be the best choice.  A few top Fools have been calling out WNR as performing the best out of this slump, but I don't believe it and wouldn't be able to sleep at night with a debt monster like that in my portfolio.

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