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Last time you picked up some WNR, your stated reason was for the spread between the Brent and WTI prices, providing WNR with the opportunity for higher margins. That gap has narrowed significantly. Is your thesis broken? Or are there other reasons for investing in WNR?

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No. of Recommendations: 1
Is your thesis broken? Or are there other reasons for investing in WNR?

Hi Liz,

It's a good question, which I've been looking at that recently. The pricing gap had to close some time, but now that it has, keep holding or move on? Right now the company's margins are still strong. Last week, I updated the graph showing trailing 12-month margins. Here it is:

As you can see, gross and operating margins seem to have settled into a range, while net margin (until the most recent TTM period) was climbing still. If it settles into a range, I might consider selling.

FCF growth expectations are still very conservative at -9.5% / -4.8% / 0% (at 15% discount rate), but FCF did drop by 28.6% YoY from $816 MM in the year-ago TTM period to $583 MM most recently.

On the other hand, there are several good pointers: ROE is over 40%, D/E is down to 0.62 (from just shy of 1.0 at end of 2011), and share count is down almost 10% since end of 2011.

According to the EIA, the narrowing of the spread has been due to increased transportation of oil in the U.S. (a lot more by rail, for instance) and refineries running at near capacity. This article -- -- also points out that the Magellan's Longhorn pipeline was reversed and the Seaway pipeline was expanded, which has let much more crude at Cushing move to refiners on the Gulf. Overall, the supply / demand imbalance is shrinking.

So, a source of outsized margins has pretty much disappeared for Western Refining, but the company is still getting good margins. I want to see one or two more quarters to see if it can maintain these margin levels at the higher WTI prices.

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