I admit that this is a rather experimental post. Recenlty, I have done some work that looks at valuations on U.S. independent refiners and have reached several conclusions. One of these is that current share prices, despite their substantial declines in 2008, still price-in a historically strong industry environment going forward. Thus, they are not priced for hard times, as some might believe. The four companies I looked at, Valero (NYSE:VLO), Tesoro (TSO), Frontier (NYSE:FTO), and Holly (HOC), are actually still more expensive in terms of capacity valuation than they were at their own share price highs of 1998-2003, at least by my analysis.
I also believe that the strongest ideas are formed via sharing and confrontation. Therefore, I have attached a rather detailed PDF to this post, which looks at the calculated historical EV/Capacity valuations for four U.S. refiners. Perhaps something similar has already been said elsewhere, but I have a feeling that it is unlikely that the same perspective had already been applied, and therefore, I hope this piece adds some value to the discussion.
Rather than imply an outright Buy or Sell opinion, simply put, it says,
U.S. refiners aren't priced for hard times; they still price-in a historically strong industry environment.
It is only meant to add one piece to a large puzzle.
Let me caution that I in no way guarantee any of its contents, and this is purely a personal opinion being presented, which could change at any time. Everyone should do his or her own due diligence. Some estimates, such as adding near-term future capacity additions to the last reported capacity, are used. Also, while I currently don't have any personal exposure to these shares, I could have exposure to them at any time without notice.
Disclosure: No positions.