Alon USA Energy Inc. (ALJ)

[Timothy Smith]

According to the company's website:

Alon owns and operates sour and heavy crude oil refineries in Big Spring, Texas, and Paramount, Long Beach and Bakersfield, California (collectively known as our California refineries), as well as a light sweet crude oil refinery in Krotz Springs, Louisiana.

The company also has a refinery in Oregon that primarily produces asphalt, asphalt being a major product for Alon. Its recent closing price was $13.85 and has a 52-week trading range of $5.35-$14.60. The company pays a $0.04 quarterly dividend for a thin 1.17% yield from a payout ratio of 30.5. Earnings per share are $0.36 for a surprising 39 PE. More concerning: a 2.0 long term debt to equity ratio is showing a higher debt level than comfortable.

Along with the debt is the company's positioning. While its Texas refinery is well positioned to take advantage of Permian Basin cut rate pricing, its operations in California have to depend on pricier feedstock. The earnings are lower because the company has been investing into the California refineries to make them more cost efficient in producing higher end products. I expect a temporary Q4 pop in earnings due to California, but I do not believe it will be sustainable.

Between its higher feedstock cost and high debt levels, Alon looks to be a pass at this time.