Yahoo Finance Why Half of Analysts Rate Western Refining a ‘Hold’
How Will a $500 Million Term Loan Impact Western Refining?
‘Hold’ rating
Western Refining’s (WNR) analyst ratings show that 43% of surveyed analysts covering the stock rate it a “buy” while 50% rate it a “hold.” The highest 12-month price target for WNR stands at $45, indicating a whopping 94% gain from the current levels. The remaining 7% of the analysts’ rate WNR a “sell.” The lowest price target of $17 implies a 27% fall from the current levels. The average 12-month price target stands at $31, indicating a 33% rise from current levels.
WNR’s peers PBF Energy (PBF), Alon USA (ALJ), and Delek US Holdings (DK) have been rated as “buys” by 67%, 9%, and 67% of analysts, respectively. If you’re looking for exposure to refining sector stocks, you can consider the iShares North American Natural Resources ETF (IGE). The ETF has ~7% exposure to the sector.
WNR’s growth strategy
WNR aims to enhance its refining profitability and expand its logistics segment. In the refining segment, WNR is undertaking a modification project at the St. Paul Park refinery, with an investment of $112 million. Plus, after the NTI merger, WNR’s refining capacity is expected to rise to 253,800 bpd (barrels per day) from the current 156,000 bpd. The merger is expected to create more than $10 million in operational synergies for the merged entity. Plus, it’s expected to provide further dropdown opportunities to Western Refining Logistics LP (WNRL).
In 1Q16, Western Refining (WNR) incurred capex (or capital expenditure) of $79 million. The company has lowered its capex guidance for 2016 to $304 million, of which $149 million is likely to be spent on discretionary projects.
But why the “hold” rating?
No doubt WNR is poised for growth. But at the same time, the company is seeing a rise in its leverage curve. Plus, Western Refining is raising another $500 million to fund its Northern Tier Energy (NTI) acquisition. The company’s cash flow from operations has also plunged in the few quarters. So the majority of analysts likely rate WNR a “hold” due to its rising leverage and weakening cash flow situation. We discuss these concerns later in this series.
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