Western Refining Quiet Period Expiration Provides Opportunity

| About: Western Refining (WNRL)

The 25 day underwriter research quiet period that began with Western Refining (NYSE:WNRL) October 9 IPO will conclude on November 3, likely leading to at least a temporary uptick in the value of WNRL shares. Though the IPO outperformed its expected price range of $19.00-21.00 with a pricing of $22.00 per share, growth in it's share price has since been modest and inconsistent; the stock closed at $23.71 on October 25. (Previous article)

As the quiet period ends, the IPO's underwriters will seek to energize the stock with a flood of positive research reports. WNRL's underwriters include BofA Merrill Lynch, Barclays, Goldman Sachs, Wells Fargo Securities, Credit Suisse, Deutsche Bank, UBS Investment Bank, Credit Agricole CIB, and Suntrust Robinson Humphrey.

Our work conducted over the past two years, along with recent academic studies, has empirically shown a relationship between the quantity and visibility of IPO underwriters and an increase in share prices towards the end of the quiet period. The increase usually emerges a few days before the underwriters have actually released their reports as investors anticipate positive results in the reports - after all, it would make little sense for an underwriter to release a negative report on a firm that it had just underwritten.

CONCLUSION
We're optimistic about this stock's future, and believe that it has a chance to go the way of Phillips 66 Partners LP (NYSE:PSXP), which IPO'd at $23 over the summer, and now trades at $33. The WNRL's parent company should keep it stable with a steady stream of contract work, though it seems somewhat unlikely that the firm will ever expand outside of its parent's contracts, and it is therefore susceptible to the parent's fortunes, for better or for worse. The firm offers a moderate quarterly yield of $0.2875 per unit, or $1.15 per unit annualized, but its dependence on its parent company to determine available cash for distribution means that these yields may or may not ever materialize.

BUSINESS
WNRL, a master limited partnership formed by Western Refining, owns, operates, acquires, and develops storage tanks, pipelines, terminals and other logistical assets for its parent. The firm's assets include approximately 300 miles of pipeline and active storage capacity of approximately 7.9 million barrels in the southwestern US; these assets are located to serve Western's refineries in Gallup, New Mexico and El Paso, Texas. The great majority of its income will be generated through a pair of ten year contracts with its parent company; Western accounted for 99% of WNRL's unaudited pro forma revenues in the six months ended June 30, 2013.

Western must compete with other petroleum refining and marketing firms a highly charged market. Major competitors include Phillips 66 Company (NYSE:PSX), Valero Energy Corp. (NYSE:VLO), HollyFrontier Corporation (NYSE:HFC), Alon USA Energy, Inc. (NYSE:ALJ), Chevron Products Company (NYSE:CVX), Tesoro Corporation (NYSE:TSO), and Suncor Energy, (NYSE:SU), among others.

MANAGEMENT
WNRL's general partner, Western Refining Logistics GP, LLC, manages WNRL, meaning WNRL is more or less entirely controlled by the officers of Western. CEO Jeff A. Stevens has worked for Western or its affiliates in various executive roles since 2000.

Disclosure: I am long WNRL. 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.