Western Refining Earnings: An Early Look

Earnings season is now starting to wind down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Western Refining (NYSE: WNR  ) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Western Refining has benefited from a huge gap between the cost of the crude oil it needs for its refining operation and the proceeds from the sale of refined products that it makes from that crude. Let's take an early look at what's been happening with Western Refining over the past quarter and what we're likely to see in its quarterly report on Thursday.

Stats on Western Refining

Analyst EPS Estimate

$1.37

Change From Year-Ago EPS

185%

Revenue Estimate

$2.31 billion

Change From Year-Ago Revenue

1.6%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Will Western Refining keep pumping out profits?
Analysts have only gotten more excited about Western Refining's prospects in the past few months, raising their estimates both for the just-ended quarter as well as for full-year 2013. With a $0.55 boost in expected EPS for the coming year, it's not hard to understand why investors have sent the stock soaring, up nearly 30% just since late November.

Western Refining has benefited from two big trends helping the refining industry. First, crack spreads, or the difference between market crude prices and the value of refined products that come from crude, have been exceedingly high. Yet what has really separated Western Refining and peers HollyFrontier (NYSE: HFC  ) and Valero (NYSE: VLO  ) from other players is their access to cheaper domestic crude supplies, which trade at a big discount to world market oil prices.

For now, pipeline capacity limitations have helped sustain the price differential between West Texas Intermediate and Brent crude prices, but the big question is how long the wide spread can last. New pipeline projects are expected to come online in the near future, but expectations are for production to continue to ramp up as well. As long as supply and demand imbalances exist, domestic crude will keep providing a price advantage to Western and its peers.

In its earnings report, look for Western Refining to explain its strategies to take maximum advantage of current favorable conditions. Refining tends to be a cyclical business, and at some point, Western investors will see their big long-term gains start to erode when the next downturn happens. Yet at least for now, it looks like that downturn isn't imminent.

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