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On Apr 17, Zacks Investment Research downgraded energy downstream operator, Western Refining Inc. (WNR - Analyst Report), to a Zacks Rank #3 (Hold).

Why the Downgrade?

Western Refining is an independent refiner and marketer of refined petroleum products in the Southwestern and Mid-Atlantic regions of the U.S. As per our opinion, in terms of geographic diversification, the lack of exposure of the company to the other refining regions in the country weakens its competitive positioning.

Besides that, Western Refining being a buyer of crude, its profitability might get affected due to the increase in oil prices. As a result, with the commodity’s price hovering around $90 per barrel, we expect Western Refining’s margins to be negatively impacted due to a rise in the cost of oil it buys to make gas, jet fuel and other refined products.  

Western Refining, one the largest independent oil refiners in the U.S., has an easy access to the West Texas Intermediate (WTI) crude. WTI is light and of very high quality. As the major portion of the company’s refining capacity uses light/sweet crude oil as feedstock, the company is unable to take advantage of the attractive crude quality spreads, which is the price differential between the low-cost heavy/sour and the higher-priced light/sweet grades of crude oil.

Based on these negatives, the Zacks Consensus Estimate for first-quarter 2013 has decreased by 15.1% to $1.01 per share over the last 60 days. For 2013, most of the estimates (6 out of 10) were revised downward over the same time frame, sinking the Zacks Consensus Estimate by 5.4% to $4.54 per share.

Stocks to Consider

Three oil refining and marketing firms that are expected to outperform the U.S. equity markets in the next one to three months are Global Partners LP (GLP - Snapshot Report), Inergy LP and Lehigh Gas Partners LP (LGP - Snapshot Report). All three stocks carry a Zacks Rank #2 (Buy).

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