Wednesday, June 18, 2014

Trading Idea: Western Refining Inc. (WNR)

Western Refining Inc. (WNR) advanced over 1,400% after breaking out of a bottoming base at the end of 2010 through the beginning of 2013. Over the last year, the stock has been digesting those gains and forming a flat base on top of a cup and handle. The recent flat base is the tightest structure in the entire year long structure. The relative strength line has been rising through the consolidation, but still needs to prove it can breakout to new highs along with the stock. Price action within the consolidation has been positive and favors accumulation. There have been several days and weeks with high volume reversals and volume diminished on down days/weeks. Indicating institutional support and lack of selling.

Quarterly sales growth has accelerated for three straight quarters from 0 - 70%, and are expected to grow over 20% in the next two quarters with annual sales growth at 24%. Earning's growth has been negative in recent quarters, but expected to accelerate to 93% over the next four quarters. The company has beaten earning's estimates three out of the last four quarters by 4%, -35.3%, 7.1%, and 10% respectively. Estimates have been revised higher over the last ninety days. Return on equity is 35% but falling margins could be a problem. The stock also yields 2.6%.

Our fundamental and technical valuation model values the stock between $60 - $80 (50 - 100% appreciation) over the next twelve to eighteen months if the market rallies and the company can keep surprising to the upside. Aggressive investors/traders can start initiating positions as the stock attempts to break out above the fifty day moving average, between $40 - 45. Protective stops should be placed around $38.

Full Disclosure: No Position



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