Headquartered in Dallas, Texas, the company provides its services primarily to Southwestern and South Central regions of the U.S. Originally a subsidiary of Alon Israel Oil Co. Ltd., ALJ spun-off in July of 2005.
Products and Operations
The company has diversified its products to include gasoline and diesel fuels marketed under the brand name FINA. ALJ, not insignificantly, operates convenience stores under the 7-Eleven and FINA brand names in West Texas and New Mexico and is also a leading producer of asphalt in Texas. It employs over 1,400 people. On the production side, its network includes a refinery, four different pipeline operations, and six terminals which it operates throughout Oklahoma and Texas.
The firm manages these businesses by separating its operations into two segments: Refining and Marketing, and Retail. The firm has set up an efficient business structure by establishing a connection between its operations and facilities. This helps set the firm apart. ALJ has no control over the price of its raw materials, mostly crude oil. It does have significant control over the manufacturing, transport and retail sale of its final product.
An independent company for less than two years, ALJ is on a mission to increase cash flow and earnings through extensions to its current businesses. In the past year, it has acquired three refineries and seven asphalt terminals, which have allowed the company to expand its refining and marketing, and its asphalt networks, into the West. This past July the company also purchased 40 convenience stores in El Paso, Texas. In addition, the company has been recognized for four National Petrochemical and Refiners Association [NPRA] Safety Awards in May of 2006, which showcases the quality of its operations.
Ultimately, Clear scrutinizes all firms based on financial performance. On March 8th, earnings will be released and we can again calculate another quarter's performance. Based on the data we have today, ALJ's one year operating margin of 8.12% is just behind the industry average of 8.53%. ALJ has a 57.50% year over year quarterly revenue increase, comparing favorably to the industry average of 35.80%, as well as an impressive one year net income growth of 73.53%. However, this is in large part due to its acquisitions. In addition, the company provided a strong 59.96% return on equity [ROE] for its shareholders this year.
In terms of valuation, ALJ has a trailing twelve month price to earnings ratio (P/E) of 7.08 which is well below the oil and gas refining and marketing industry average of 10.26, suggesting that the stock is undervalued. Given its asphalt operations and retail convenience stores, these businesses make the firm somewhat harder to value than pure-play competitors. Looking at other valuation measures, ALJ has a price to earnings to growth [PEG] ratio of only 0.10. Comparing that statistic to its oil and gas refining and marketing peer group average of 1.39, even with its ancillary businesses, may show that its growth is not currently fully priced by the market. The stock has gone on a ride with major analysts upgrading and downgrading the stock on double digit percentage gains and losses.
As is the case with many energy industry companies, ALJ's stock frequently moves in tandem with the price of oil. Really looking under the hood, the stock has more to offer than a proxy for energy. Given some of these attractive valuation and profitability measures and the depth of the firm, we believe that the stock has earned its place in the Claymore/Clear Spin-Off ETF (CSD) and may ultimately be a top performer.
Disclosure: Alon USA Energy Inc. [ALJ], is a constituent in the Clear Spin-Off index licensed for the Claymore/Clear Spin-Off ETF (AMEX:CSD). Mr. Corn is CEO and founder of Clear Indexes LLC which publishes the index and he owns shares of the ETF: CSD. He does not directly own shares in ALJ.
ALJ 1-yr chart