Earlier this month, independent oil refiner and marketer Western Refining Inc. (WNR) announced its financial results for the fourth-quarter and year-end 2010.
Now that the analysts have had some time to ponder over the quarterly performance of Western Refining, they are weighing their estimate revisions. Below we cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for the outlook.
Earnings Review
On March 3, 2011, Western Refining reported weaker-then-expected fourth quarter results, reflecting lower refinery throughput. The company incurred loss per share (excluding special items) of 4 cents, against the Zacks Consensus Estimate of profit of 5 cents.
However, Western Refining improved considerably from the fourth quarter 2009 loss of 58 cents per share (excluding special items) amid higher refining margins and gains from cost saving initiatives.
Revenue of $1.9 billion was down 4.8% from the year-ago level and missed the Zacks Consensus Estimate by 2.2%.
For full-year 2010, the company lost 10 cents per share on revenues of $8.0 billion.
(Read our full coverage on this earnings report: WNR Loss Narrows, But Misses Ests)
Agreement of Estimate Revisions
Despite the quarterly underperformance, analysts exhibit a strong bullish sentiment regarding Western Refining’s 2011 and 2012 outlooks. In particular, we see a notable number of estimate revisions over the past 30 days, indicating that revisions were in response to the company’s December quarter earnings release.
Out of 8 analysts covering the stock, 7 have revised their estimates for 2011 upward, while none have gone in the opposite direction. The trend is similar for 2012 as well. Out of 7 analysts, 5 raised their estimates as against no negative revisions.
Estimates are up for the March quarter of 2011 as well. For the current quarter, 4 of the 7 analysts have increased their estimates over the last 30 days, compared to just 1 negative adjustment.
This uptrend in estimate revisions reflects strong near-term financial results for Western refining with the expectation that cash flows will be driven by fundamental improvement in the business. Given the improved overall refining margins, we see a consistent stream of earnings form the company’s operations.
Magnitude of Estimate Revisions
As a result of the analysts revising estimates northward over the past 30 days, the Zacks Consensus Estimate for fiscal 2011 has gone up by 89 cents (from $1.06 to $1.95), while for 2012, estimates have improved by 76 cents (from $1.14 to $1.90). Meanwhile, for the first quarter of 2011, estimates have increased by 10 cents (from 16 cents to 26 cents) in the last 30 days.
Our Recommendation
An uptick in economic activity overseas (mainly in China and India) and prospects for higher fuel demand in the U.S. are likely to push 2011 industry margins higher than the last year’s level. Against this backdrop, we expect income from Western Refining’s refining operations to improve in 2011.
Additionally, we believe Western Refining’s strategic actions – to improve its performance and competitiveness in a cost-effective manner – will drive the company’s profitable growth and boost its stock valuation.
In the near term, the company stands to benefit from exposure to the profitable Southwest refining assets. Western Refining’s strong retail and wholesale operations strengthen the positive sentiment.
As such, we believe Western Refining is well positioned going forward and view it as an attractive investment. Our long-term Outperform recommendation is supported by a Zacks #2 Rank (short-term Buy rating).
Western Refining competes in the Oil Refining and Marketing industry with companies like Valero Energy Corp. (VLO), Tesoro Corp. (TSO) and Sunoco Inc. (SUN).
SUNOCO INC (SUN): Free Stock Analysis Report
TESORO CORP (TSO): Free Stock Analysis Report
VALERO ENERGY (VLO): Free Stock Analysis Report
WESTERN REFING (WNR): Free Stock Analysis Report
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