2 More Refiners Overcoming Doubters

| About: Alon USA (ALJ)

Another day, another two refinery stocks crushing expectations in delivering their earnings results. The significant sell-off from mid-March through April in the sector appears substantially overdone, as about every company in the sector has easily beat consensus estimates on the top and bottom lines. The stocks have generally moved significantly higher after quarterly results. The doubters who cited a declining crack spread for their pessimism months ago will have to re-evaluate after this earnings season. Here are two more cheap refiners that overdelivered in the first quarter.

Alon USA Energy (NYSE:ALJ) engages in refining and marketing petroleum products primarily in the south central, southwestern, and western regions of the United States. The company operates in three segments: refining and marketing, asphalt, and retail. It operates some 300 gas/retail convenience stores located in central and western Texas, and New Mexico.

Earnings: EPS for the quarter came in at 86 cents, 31 cents above estimates. Revenue also beat expectations by $120 million.

Here are four reasons why ALJ is cheap at $18 a share:

  1. This is the third straight quarter the company beat on the bottom line. Consensus earnings estimates for both FY 2013 and FY 2014 had already gone up over the past three months. Look for more upward revisions based on these results.
  2. The company has a strong balance sheet, and Alon reduced its net debt by $137 million to $334 million in the just-reported quarter.
  3. The stock sells for less than 10 times this year's expected earnings. It also yields 1.5% after announcing a 50% dividend hike along with quarterly earnings.
  4. Operating cash flow (OCF) growth is impressive: $21 million for FY 2010, $69 million for FY 2011, and $387 million for FY 2012. The stock sells at three times current OCF.

Delek US Holdings (NYSE:DK) is as an integrated downstream energy company that operates in the petroleum refining, logistics, and convenience store retailing businesses. It operates ~375 gas/retail convenience stores.

Earnings: EPS for the quarter came in at $1.28, 14 cents above estimates. Revenue also beat expectations by $310 million.

Here are four reasons why DK is a good value at $38 a share:

  1. This is the sixth straight quarter the company has beat on the bottom line against expectations. Look for upward revisions on consensus earnings estimates for FY 2013 and FY 2014 after these results.
  2. The company has over $300 million in net cash on its balance sheet (~15% of market capitalization).
  3. The stock sells at just over eight times forward earnings, a deep discount to its five-year average (21.6).
  4. DK has a five-year projected PEG of under 1 (.65), pays a 1.1% dividend yield, sells at ~five times operating cash flow, and Credit Suisse has an "Outperform" rating on the stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.