Identifying Value In Refining Stocks (MPC, VLO, MUR, HFC, SUN, TSO, WNR, MRO)

The refining business has been in the news a lot recently for two things. One, it’s making money again. Two, integrated oil companies are shedding refining assets at a rapid pace. Now’s a good time to see if there could be a value play available in the industry. We’ve looked at seven major refiners: Marathon Petroleum Corp. (NYSE: MPC), Valero Energy Corp. (NYSE: VLO), Murphy Oil Corp. (NYSE: MUR), HollyFrontier Corp. (NYSE: HFC), Sunoco Inc. (NYSE: SUN), Tesoro Corp. (NYSE: TSO), and Western Refining Inc. (NYSE: WNR).

Marathon Petroleum was spun out of Marathon Oil Corp. (NYSE: MRO) in late July. Since then, the stock has been quite volatile, but is now back to about where it was at the time of the spin-off. Shares recently traded at $37.41 and its market cap is $12.94 billion. The stock’s 52-week trading range is $29.32 to $47.17.  The current value is trading at a price-to-book ratio of about 1.44 to 1. Its forward price earnings multiple is 4.86. The company currently pays a dividend yield of 2.2% to investors.  Thomson Reuters has a consensus price target of $51.92, implying roughly 39% upside to the most recent price.

Valero has gotten a boost from its entry into the ethanol market and could be a buyer for the two refineries that Sunoco plans to shed by next July. Valero’s shares recently traded at $23.55 and its market cap is $12.75 billion. The stock’s 52-week trading range is $16.43-$30.98.  The current value is trading at a price-to-book ratio of about 0.80 to 1. Its forward price earnings multiple is 5.39. The company currently pays a dividend yield of 0.90% to investors. Thomson Reuters has a consensus price target of $30.06, implying roughly 28% upside to the most recent price.

Murphy Oil, unlike the other refiners, still owns some exploration and production assets that help keep its value up. Murphy’s stock recently traded at $51.98 and its market cap is $10.18 billion. The stock’s 52-week trading range is $47.24-$77.41.  The current value is trading at a price-to-book ratio of about 1.15 to 1. Its forward price earnings multiple is 7.39. The company currently pays a dividend yield of 2.09% to investors. Thomson Reuters has a consensus price target of $75.00, implying roughly 44% upside to the most recent price.

HollyFrontier was formed from a merger of Holly Corp. and Frontier Oil in June of this year. Since then the stock has moved generally upward. HollyFrontier shares recently traded at $37.74 and its market cap is $7.79 billion. The stock’s 52-week trading range is $13.34-$38.90. The current value is trading at a price-to-book ratio of 4.13. Its forward price earnings multiple is 6.12. The company currently pays a dividend of 0.94% to investors. Thomson Reuters has a consensus price target of $41.00, implying roughly 10% to the most recent price.

Sunoco announced yesterday that it would be selling or closing its remaining refining assets. Once that happens, Sunoco will own gas stations and majority positions in two other recent spin-offs in logistics and petroleum coke production. Sunoco’s shares recently traded at $38.79 and its market cap is $4.75 billion. The stock’s 52-week trading range is $27.76-$46.57. The current value is trading at a price-to-book ratio of 1.68. Its forward price earnings multiple is 19.70. The company currently pays a dividend of 1.53% to investors. Thomson Reuters has a consensus price target of $44.20, implying roughly 14% to the most recent price.

Tesoro has announced that it plans to add nearly 300 retail outlets to its existing 1,200. The company expects a 12% boost to its business with these additions. Tesoro shares recently traded at $25.02 and its market cap is $3.46 billion. The stock’s 52-week trading range is $12.03-$28.74.  The current value is trading at a price-to-book ratio of about 0.97 to 1. Its forward price earnings multiple is 6.35. The company currently pays no dividend to investors. Thomson Reuters has a consensus price target of $27.79, implying roughly 11% upside to the most recent price.

Western Refining is the smallest of the seven companies we’ve looked at here. Most of its sales are in low population states in the US southwest. Western’s shares recently traded at $17.95 and its market cap is $1.62 billion. The stock’s 52-week trading range is $4.70-$21.75.  The current value is trading at a price-to-book ratio of about 2.00 to 1. Its forward price earnings multiple is 5.85. The company currently pays no dividend to investors. Thomson Reuters has a consensus price target of $20.63, implying roughly 15% upside to the most recent price.

The substantial upside for Murphy reflects the company’s E&P asset holdings. Owning at least some of the refining feedstock helps Murphy smooth out the higher prices for crude oil and its access to domestic crude rather than imported, more expensive crude also works in its favor. Marathon Petroleum and Valero also have substantial upside, but in their cases they are vulnerable to a closing of the differential between WTI and Brent crudes. Murphy is an overall better choice.

Paul Ausick