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HollyFrontier Corporation Message Board

  • mario_themario mario_themario Jul 15, 2011 8:02 PM Flag

    Refiner comparison

    Looking at WNR, CVI, and HFC. WNR has gone from ~4 to 21+ + CVI from 7 to 27, while HOC from 25 to 72 including FTO. WNR operates basically 2 refineries now with ~ 165K + CVI with 1 refinery 115K + HFC now over 425K. CVI is almost neutral debt to cash while WNR has 1BB debt + HFC will have ~ 200MM in cash after the report. One hiccup at CVI + they are dead + not much wiggle room at WNR, yet those 2 have moved higher than HFC + the dynamics are definitely in favor of HFC. CVI does have the fertilizer biz + WNR retail outlets + a defunct refinery in VA that is now just a terminal. HFC does have a pipeline biz. Bottom line, comparing the 3, HFC is grossly undervauled, however the short interest is 38% at WNR + over 12% at CVI, which lends to short covering. WNR has missed earnings big time 3/4 QTRs + CVI missed the last + was even the prior QTR. Expect HFC to blow out earnings so I guess I have no idea why the large sentiment toward WNR/CVI. Any ideas? VLO is a matter of economy of scale + TSO who knows at this point. Still don't get the downgrade based on the above.

    Sorry, just some random thoughts blowing in my inept brain :). Still long here + will stay that way. Blew it by not picking up shares when it dipped below 70, out playing golf. That round cost me.

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    • With 4 billion capitalization, HFC is now sitting pretty as a target for one of the big companies wanting a presence in midwest- where WTI rules. 4 Bil is chump change for the big boys.

    • I had some of the same thoughts Mario. WNR payed a huge premium to buy their now defunct terminal. 1 Bill in liabilities. Only the short interest and random pumping articles to raise the price with secondary looming. CVI more promising. Great locations to cheaper stock and fertilizer which could be sold off easy. The BoA/Merrill downgrade was a joke based on current evaluation and assumed WTI/Spread spread would narrow.
      I think not! Brent fields are too mature and will take another 4-5 years to increase production to compensate for the decline in the matureing fields. 3 new rigs arn't planned for production until 2015. These must be complex rigs as well. Korean made.
      Bottom line, the whole refining landscape is changing. COP announced splitting its refining group. Chevron and exxon will eventually. The way it may mega refinery groups which will eventually compete with VLO. Maybe 3 big boys left standing with HFC as prime realestate. No one knows how to value them at this point, and I'm not sure why. I believe your estimates are close if you exclude the one time payment frontier gave out added in. Debt rating improvement as well.
      So many opinions regarding cheap WTI spread eventually reversing. No new pipeline for at least 18 months and VLO just stated that they are spending mega millions on a train terminal for 30,000 bpd from the Bakken to Washington state. If the spread was going to be changing that quickly, I don't think they would be investing in such expenditures.
      Just thinking... HFC is undervalued, but when it starts to run, I believe 80 will be taken out very quickly. No debt, operational effeciencies at holly's OK refinery just starting to reep the benefits in the 3rd Q and prime complex refineries that can take advantage of cheap feed stock. This is a giant cash cow in the making. The slightest rebound in the 3rd Q, were set for another 30 points from here. Absent a catestrophic event, were in good shape.

      • 2 Replies to stockdoc82
      • I stand corrected. THX precaud. I ment TSO developing rail line but instead in my ferror stated VLO. My bad.

      • CS first boston initiated HFC with buy and $95target this week.

        They see HFC generating FCF thru 2014 equal to 50% of their capitalization.

        They expect a significant portion of this cash flow to be returned to shareholders. Little additional acquisitions expected given the synergies of
        Merger yet to be realized, thus again focusing FCF to direction of shareholders.

        Shares trade at 6 x their estimate of 2012 earnings, and they state the share are trading as if at the bottom of a cycle in business, more akin to recession lows.

        I would look for heads to turn when they see the outsized quarterly earnings of over $3/SH, almost 200% up from last year.

        First Boston sees CVI priced even cheaper than HFC on EBiTDA basis, but the single refinery concentration is a risk with CVI, and their overall operations are less diversified...hence they appear more likely to use cash flow for asset purchases.

        They see VLO very cheap, but I'm inclined to believe the mid-continent refiners are in the cats bird seat, and will be so thru 2013, by which time their
        Cash generation will have been mind bending.

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