NEW YORK (MagicDiligence.com) -- Oil refining has not historically been considered a business with particularly attractive returns on capital, but recent conditions in the oil markets have led to highly desirable conditions for two refiners in particular, HollyFrontier (HFC - Get Report) and Western Refining (WNR).As a result, and of investors not sold on the longevity of those favorable conditions, both stocks are currently a part of the Magic Formula® Investing (MFI) "universe." Let's take a look at the business, why the going is good at present, whether it can last, and which of these two players is the more attractive choice for investors intrigued by the story.
True to Economics 101, the increasing supply has led to decreasing prices for WTI. Since the start of 2011, WTI has priced between 10% to 20% lower than Brent, spiking up to above 25% and currently at about a 15% discount.
Earnings Yield: HFC 29.3%, WNR 29.9%. Free Cash Yield: HFC 19.1%, WNR 19.9%. Dividend Yield: HFC 1.86%, WNR 0.78%. Debt-to-Equity Ratio: HFC 0.25, WNR 1.02. Interest Coverage Ratio: HFC 20.9, WNR 5.8. Clearly, the numbers are in favor of HFC. It is in much better financial condition than WNR, pays a better dividend (with two special dividends in the past year), is larger and more diversified (particularly after the Frontier merger), and boasts a seasoned management team. If the refining story sounds intriguing, HFC looks to be the better pick of the two.