Back to top

Value

Is a P/E of 5 cheap enough for you? Alon USA Energy, Inc. (ALJ - Snapshot Report) is a refiner benefiting from higher crack spreads and more favorable crude spreads. This Zacks #1 Rank (strong buy) is expected to post triple digit earnings growth in 2011.

Alon USA Energy is an independent refiner of petroleum products operating 4 refineries in Texas, California, Louisiana and Oregon. It has a crude capacity of about 250,000 barrels per day.

The company is also a leading producer of asphalt, primarily through its asphalt terminals in the western United States.

Additionally, it is also the largest 7-Eleven licensee in the U.S. with more than 300 convenience stores in Texas and New Mexico. It markets fuel under the FINA brand at these locations.

Record Performance for the Retail Segment in Q2

On Aug 4, Alon reported its second quarter results which saw the retail and branded marketing segment posting a record quarter. EBITDA rose 31.7% to $14.1 million compared to the second quarter of a year ago.

The company missed on the Zacks Consensus Estimate, however, posting 30 cents compared to the consensus calling for 35 cents. It has had a choppy earnings surprise performance, missing 2 out of the prior 4 quarters.

The power behind the company's earnings in 2011, however, is the jump in the crack and crude spreads. The average Gulf Coast and West Coast 3/2/1 crack spreads both rose substantially year over year. The Gulf Coast crack spread was $24.07 up from $9.75 per barrel last year. The West Coast crack spread climbed to $28.82 from $15.47 in the second quarter of 2010.

The average sweet/sour spread for the second quarter was $2.54 per barrel compared to $1.82 per barrel last year. Additionally, the average LLS to WTI spread for the quarter was $16.09 per barrel, up from $4.41 per barrel last year.

For example, its Big Spring refinery had an operating margin of $19.65 per barrel as it took advantage of the discounted WTI prices currently in the market. In the year ago quarter, its operating margin was just $9.58 per barrel.

2011 Zacks Consensus Estimates Soar

Analysts are still very bullish on the full year despite the earnings miss in the second quarter.

In just the last week, an analyst raised for the full year, which pushed the 2011 Zacks Consensus up to $1.62 from $1.53 per share.

This is a complete turnaround from last year, where the company lost $2.41 per share.

That is earnings growth of 167% over 2010.

Alon Is Very, Very Cheap

Shares rallied for most of 2011 on the widening crude and crack spreads until the summer sell-off spooked investors.

Shares have dropped considerably from the 2011 high while estimates continue to rise. This makes Alon even cheaper.

In addition to a P/E of just 5, it has a price-to-book of only 1.3. A P/B ratio under 3.0 usually designates value.

Alon also has a dirt cheap price-to-sales ratio of only 0.1. A P/S under 1.0 is considered an undervalued company, much less one that is just 0.1.

Shareholders are rewarded with a dividend, currently yielding 2.0%. That is much larger than the industry, which averages just 0.5%.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.

Please login to Zacks.com or register to post a comment.