Today, Ford Equity Research Report Editor Richard Segarra recommends a domestic oil refiner and marketer with favorable metrics.
“Alon USA Energy, Inc. (ALJ $20 NYSE) is a holding company. Through its subsidiaries, the company is engaged as an independent refiner and marketer of petroleum products operating primarily in the South Central, Southwestern and Western regions of the U.S. The company’s crude oil refineries are located in Texas, California, Oregon and Louisiana.
“The company’s refineries produce petroleum products including gasoline, diesel fuel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt, and other petroleum-based products. The company has three segments: refining and unbranded marketing; asphalt; and retail and branded marketing. As of Dec 31 2011, the company operated 302 convenience stores in Central and West Texas and New Mexico. ... We project that Alon will strongly outperform the market over the next six to 12 months. This projection is based on our analysis of three key factors that influence common stock performance: earnings strength, relative valuation, and recent price movement.
“Earnings strength is very positive. Ford’s earnings momentum measures the acceleration or deceleration in trailing 12 month operating earnings per share growth. ... EPS increased from $0.43 to an estimated $2.01 over the past five quarters, indicating an improving growth rate. Analyst forecasts have recently been raised. The company recently reported better than expected results. This indicates an improvement in future earnings growth may occur. ...
“Relative valuation is very positive. Alon’s operating earnings yield of 10.1% ranks above 91% of the other companies in the Ford universe of stocks, indicating that it is undervalued. Ford measures the relative valuation of each company against all other companies in our research universe.
“[Finally,] price movement is very positive. Alon’s stock price is up 102.2% in the last 12 months (very positive), up 39.7% in the past quarter (very negative) and down 3.5% in the past month (positive). This historical performance should lead to above average price performance in the next one to three months. ...
Recommendation Summary
“Ford’s Strong Buy recommendation on Alon USA Energy is the result of our systematic analysis on three basic characteristics: earnings strength, relative valuation, and recent stock price movement. The company has enjoyed a very positive trend in earnings per share over the past five quarters. However, while recent estimates for the company have been mixed, ALJ has posted better than expected results. Based on operating earnings yield, the company is undervalued when compared to all of the companies we cover. Share price changes over the past year indicate that ALJ will perform very well over the near term.”
- Richard Segarra, CFA, Ford Equity Research, March 1, 2013