What’s WNR’s Leverage Position Compared to Its Peers?
What You Should Know about WNR: An Evolving Refining Player
Peer comparison
Western Refining’s (WNR) net debt to adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at 0.72x in 4Q15. This is higher than the average ratio of 0.56x of its peers HollyFrontier (HFC), PBF Energy (PBF), and Alon USA Energy (ALJ). This ratio shows a firm’s leverage position as a multiple of its earnings. Usually, everything else being equal, a lower ratio signifies a healthier leverage position and better capacity to repay debt.
In 4Q15, WNR’s total debt-to-capital ratio stood at 36%, higher than the peer average of 32.9% of HFC, PBF, and ALJ. The debt-to-capital ratio shows a firm’s leverage position and capital structure. For exposure to energy sector stocks, you can consider the PowerShares Dynamic Large Cap Value Portfolio (PWV), which has ~11% exposure to the sector.
WNR’s leverage
Western Refining’s net debt to adjusted EBITDA fell from 0.87x in 4Q14 to 0.72x in 4Q15. Before analyzing the fall in the ratio, let’s look at the net debt trend.
WNR’s net debt has fallen by 14% over 4Q14 to $931 million in 4Q15. This is on account of a steeper rise in cash and equivalents compared to the rise in total debt. Total debt (including lease finance obligation) has risen by 13% over 4Q14 to $1,703 million in 4Q15. The rise in total debt was to fund capex, pay dividends, and repurchase shares. But cash and equivalents rose even more sharply by 79% over 4Q14 to $773 million in 4Q15. This is due to higher cash flow from operations from 1Q15 to 3Q15.
WNR’s trailing-12-month adjusted EBITDA, amid volatility, has risen by 5% in 4Q15. Thus, a rise in adjusted EBITDA coupled with a fall in net debt from 4Q14–4Q15 led to a decline in the net debt to adjusted EBITDA multiple. Going forward, with higher capex in sight, it will be important for investors to monitor WNR’s leverage curve.
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