Valero Energy Corporation (VLO), Western Refining, Inc. (WNR): Are Refiners Making a Comeback?

The company’s drop in profitability was due to the decrease in refining and marketing gross margins, which plummeted by 44.5% (year-over-year).

But the ongoing rise in U.S refinery input and the recent increase in the price for oil are likely to pull up the revenue of leading refining companies and may also improve their refining margins.

Dividend

These refineries have recently increased their dividend payments and they offer reasonable dividend yields: Valero Energy Corporation (NYSE:VLO)’s annual dividend yield is around 2.6%. Further, Marathon Petroleum Corp (NYSE:MPC)’s dividend was recently raised and currently pays an annual yield of 2.3%. Western Refining, Inc. (NYSE:WNR)’s yearly dividend yield is around 2.3%.

These companies continue to increase their dividend payments despite the drop in their profit margins. If they keep going in this direction, they are likely to make more attractive investments. 

Is the price right?

Despite the rally in some of these oil-refining companies, their current valuations are still low for the industry. In the table below are these companies’ enterprise value and their EV-to-EBITDA ratios.

This calculation accounts for these companies’ financial structure and not just their earnings and market cap. The yearly EBITDA is based on the last four quarterly earnings reports. Based on the above, all three companies have a low EV-to-EBITDA ratio compared to the industry average. Their ratios are very close to one another so they suggest, at face value, these companies’ valuations aren’t high.

Takeaway

The contraction in the Brent-WTI spread might adversely affect the profitability of some refining companies. But the following factors suggest these refining companies will augment their revenue and profit margins:  the current high price for oil, recovery in refinery inputs, and ongoing increases in capital expenditures. Finally, refineries’ reasonable dividends and reasonable stock prices make these companies worth considering for your portfolio.

The article Are Refiners Making a Comeback? originally appeared on Fool.com and is written by Lior Cohen.

Lior Cohen has no position in any stocks mentioned. The Motley Fool owns shares of Western Refining. Lior is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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