Back to top

Analyst Blog

We have downgraded Western Refining Inc. (WNR - Analyst Report) shares to Neutral from Outperform following the independent oil refiner’s weaker-than-expected operating results.

Incorporated in 2005, El Paso, Texas-headquartered Western Refining’s operations are concentrated in the Southwestern and Mid-Atlantic regions of the U.S. The company operates in three segments: Refining (accounted for 93% of the company’s total 2011 operating income), Wholesale (6%) and Retail (1%).

On November 1, Western Refining came out with weak third quarter profits due to higher operating expenses and lower refining margins. The company reported earnings per share (excluding special items) of $0.99, much lower than prior-year quarter earnings of $1.37. Earnings also fell well short of the Zacks Consensus Estimate of $1.46 per share.

Additionally, in terms of geographic diversification, Western Refining’s lack of exposure to the other refining regions in the country weakens its competitive positioning. In our view, the company’s Southwest-centric operating footprint acts as a major liability.

Western Refining is also faced with volatile industry fundamentals, which may further limit its ability to generate positive earnings surprises.

However, all is not bleak with the company, which has achieved considerable success in reducing debt and in its initiatives to improve reliability/reduce operating costs.

Most importantly, Western Refining’s easy access to the lower-priced West Texas Intermediate (WTI) crude gives a cost advantage that is reflected in the company’s high gross margins vis-à-vis its peers like Valero Energy Corp. (VLO - Analyst Report) and Tesoro Corp. (TSO - Analyst Report).

Overall, we think the current valuation is fair and adequately reflects the company’s future growth prospects. As a result, our long-term total return expectation for Western refining remains rather muted.

We do not see any significant price upside for the shares in the next few quarters and expect the partnership to grow at a somewhat more conservative and sustainable pace. Our new long-term Neutral recommendation is supported by a Zacks #3 Rank (short-term Hold rating).

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
UNITED THER… UTHR 117.83 +28.51%
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%