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Alon USA’s Production Growth May Offset Headwinds

Barclays slashed earnings estimates from AlonUSA, but the company expects significant production growth for the second-half of 2014.



Barclays may have expressed  pessimism surrounding upcoming earnings of oil refiners, but Alon USA, an offshoot of Alon Israel, foresees a dramatic expansion in production for the second half of the year. The permission given by the U.S. government to export ultra-light crude oil may be bad news for many U.S.-based refiners, and the stocks of AlonUSA, along with Philllips66, Holly Frontier and Valero Energy have been punished recently and have faced analyst downgrades.

Barrons reports that Barclays analyst, Paul Cheng, made the following statement:

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“In light of the heavy downtime and narrower-than-expected North American crude oil price differential environment, we expect US refiners will come in below consensus estimates…

The US refiners have fared much better than their international peers, but have been adversely impacted by the narrowing in most of the key North American crude differentials. We note that refiners exposed to the Cushing/Midland differential, however, did not see as much of a variance relative to current consensus estimates following our revisions. While the Brent/WTI Cushing spread narrowed by nearly $3/bl q/q, the Cushing/Midland differential on a trade month basis actually widened further to $8.4/bl in 2Q14 compared to $3.7/bl in 1Q14.”

Barclay’s slashed full-year earnings per share estimates for AlonUSA from $1.25 to $0.35 because of its lowered second quarter guidance for production at its Big Spring refinery from 46, 000 barrels per day to 39, 000 barrels per day. However, according to an announcement made by the company on July 8th, its third and fourth quarter guidance is showing an expected increase in production, thanks to the completion of its vacuum tower project. For the third and fourth quarter, AlonUSA has set its production targets at 74, 000  barrels per day and 75, 000 barrels per day, respectively.

While the U.S. government’s permission to allow the exports caught many refiners off guard, given that it was an unexpected development, AlonUSA’s expected production increases for Q3 and Q4 are worthy of note for those interested in researching the stock.

AlonUSA has its origins as Alon, a company founded in Israel to profit from the deregulation of the country’s fuel sector in 1989.  Alon acquired a 65% interest in Dor Energy, and expanded into the United States to form AlonUSA, and acquired the Big Spring refinery in 2000. In 2003, Alon bought Blue Square, a leading Israeli supermarket chain, and became an international holding company in 2004.




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