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goldminingXpert (29.53)

Western Refining Thrives In Our Post-Gustav World

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September 02, 2008 – Comments (8) | RELATED TICKERS: WNR , USO , VLO

Unlike everything else in today's oil/commodity crash, WNR continued its steady ride higher.

As some of you know, I pitched WNR $10 calls at 35 cents as a good idea last week. Now, one Hurricane Gustav later, WNR is one of the few Hurricane plays (homebuilders being the other) trading higher. WNR rose 13 cents (1.5%) in volatile trading today. What does this mean for the future?

The picture at WNR now: Obviously the hurricane play didn't quite work. However, the other thing that bullishly drives refiners is now in play: declining oil price. Western carries roughly ~$750 million in oil inventory at any given time according to the Q2 conference call... guess what... they suddenly have to carry less inventory now, to the tune of 5% ($37 million or so less) than last week. The company was celebrating a $60 million tax refund in the CC... certainly extra cash on hand is good for a company needing to raise cash. The price of gas has fallen slower for WNR meaning they are getting a higher profit margin while carrying less inventory... this is refiner heaven. Plus, gas at $3.25-$3.50 should stimulate demand for gasoline thus boosting spreads further.

Also at work, WNR is selling off its logistic black sheep: The Yorktown Refinery. I expect that this sale will be interpreted as bullish since the inflow of cash will greatly strength the balance sheet and remove the cloud of doubt that overhangs the company regarding their debt covenates. Finally, we're looking at a much higher EPS number for Q3 as the company is enjoying the higher crack spread. At this level, the company can expect to make somewhere in the neighborhood of 25 to 30 cents EPS for Q3, thus doubling last quarter's EPS and leading to a respectable sub-10 P/E if this new range of EPS can be maintained. Remember, WNR sported a 4 P/E recently and will again if the crack spread gets cranking.

One more thing, besides oil, the other major input cost at WNR is nat gas. That dropped 9% today, but their product, gasoline, only dropped 4%... that's a 5% one-day increase in the profitably of using nat gas to turn oil into gasoline... that will boost earnings as well.

For all you dissappoined by today's WNR action post-Gustav, let me give you some numbers on the Hurricane Gustav plays:

Oil (USO) (-4.2%)

Nat Gas (UNG) (-9.47%)

Oil service (OIH)(-4.62%)

Exxon (XOM) (-3.35%)

Global Ind.(GLBL)(-9.00%)

Transocean (RIG) (-2.28%)

Gasoline (UGA) (-4.17%)

Gold (GLD) (-3.32%)

Beazer (BZH) (+6.03%)--only other hurricane play up on reasons that escape me.



and other refiners:



Tesoro (TSO) (-6.95%)

Valero (VLO) (-4.20%)

Frontier(FTO) (-10.02%)

Alon (ALJ) (-5.99%)

Delek (DK) (-4.18%)

Western (WNR) +1.44%

Clearly Western is outperforming everything in sight. I'm still long the Sept $10 calls, the 275 physical shares of stock I own, and $5 March calls I owned going into Gustav, and I've added some Oct $12.5 calls as well as I fully except this 35 cent flyers to double as the stock nears $12 by the end of the month.

 

8 Comments – Post Your Own

#1) On September 02, 2008 at 7:15 PM, nuf2bdangrus (< 20) wrote:

Nice call.  I went long TSo and FTO last month, and have ...NOTHING.  Went long some Canadian energy  SU, also SJT, UPL.  BIG LOSSES.  Worse, the banks are rallying in a red tape....seems the Fed's plays are working.  I have puts on RF...and it rallies just because it eats a dead bank.  GO FIGURE.

 

Whenever I get ahead, MR market takes it all back from me.  I am cashing out my trading accoun t on the next oil rally/financials selloff.  Deflation is here. 

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#2) On September 02, 2008 at 7:57 PM, TDRH (99.72) wrote:

Seems to be a lot of negativity in the market for refiners in general.   I had a buy in at $6.50 that did not take, but several people I know have ridden the wave on the squeeze.  

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#3) On September 02, 2008 at 8:44 PM, dexion10 (27.61) wrote:

I'll be here to short WNR ahead of next summer.... I'll let it rally now into the winter when they can use cheap by products like NGL in their gas blends....

 

next summer will suck for WNR and I'll be there shorting it and laughing my butt off!

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#4) On September 02, 2008 at 8:44 PM, dexion10 (27.61) wrote:

I'll be here to short WNR ahead of next summer.... I'll let it rally now into the winter when they can use cheap by products like NGL in their gas blends....

 

next summer will suck for WNR and I'll be there shorting it and laughing my butt off!

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#5) On September 02, 2008 at 10:17 PM, goldminingXpert (29.53) wrote:

I'm not talking about next summer dexion.

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#6) On September 03, 2008 at 6:45 PM, jdlech (< 20) wrote:

I must admit, TDRHs $6.50 would have been a phenomenal buy.  I wish I had bought at $7.xx.  Even so, I've recouped all my previous losses for the year and am left with a tidy profit.  The problem with this stock is that it's so volatile it's really hard to put any meaningful trailing stop on it.  Even on a normal day, it will move up and down 5 - 6 - even 7 percent.  A 10% trailing stop becomes all but meaningless for profit taking.

I would like to see us ride this one up into the mid teens, at least.

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#7) On September 03, 2008 at 7:45 PM, leohaas (33.21) wrote:

Great call! I sold my WNR today at almost 50% profit in less than a month. Still own some calls, so I figured I had too many eggs in one basket. Don't you have that feeling?

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#8) On September 03, 2008 at 10:15 PM, Tastylunch (29.29) wrote:

Props to you GMX, was a very nice call.

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