Western Refining Inc. (NYSE: WNR) still may be well off of its highs, but it also has recovered handily off of its lows. Shares of the El Paso, Texas-based company were raised to Outperform from Neutral at Credit Suisse on Monday. What stands out is not just the official price target hike to $31 from $27, but the note that Western Refining could rise to $40 in 2020.

If Credit Suisse’s Edward Westlake is accurate in his long-term views, this could represent upside of about 43% from the current prices. Then there is the dividend consideration, which would add 5.4% or so in annual payments to the total return. That could create a combined total return north of 60%, if the Credit Suisse report is right.

Driving forces behind this call are the dividend and de-leveraging, with, as mentioned, the official target being raised to $31 from $27. These targets are generally 12 months out.

Westlake’s report said:

In recent presentation materials, Western Refining has outlined how the location premium of its refineries, the ability to drop logistics assets into WNRL should allow the company to fund the 5.5% dividend yield and delever at the parent. As headline balance sheet debt reduces and the value of Western Refining’s GP and LP stake rises, then the shares have upside over time, possibly as high as $40.00 per share in 2020.

On top of the 12-month target being raised, Credit Suisse raised its 2017 EBITDA by 4% to $816 million. EBITDA should rise toward $900 million in 2018, helped by logistics growth and no turnarounds.

The firm also points out that the highest margin refineries support cash generation ahead. Its El Paso and St. Paul park are niche refineries sitting close to crude production and accessing premium product markets. They should achieve the highest margin and deserve a higher multiple versus peers.

An outside equity offering from September 7 and an upsized revolving line of credit have de-risked WNRL’s ability to buy assets from Western Refining through 2018. There is also said to be a “capital light” EBITDA logistics growth in Western Refining’s Bobcat pipe and Delaware gathering. There could also be opportunities to invest for logistics growth.

Lastly, Westlake sees Western Refining’s margins rising quickly into quarter end. The report said:

With strong demand growth in the South West, mid-con refinery disruptions plus October maintenance, margins have risen quickly particularly regional margins e.g. Phoenix. This helps offset the SPP turnaround. We raise Western Refining’s third quarter EBITDA by 14%. We revise 2016-17 EPS estimates to $1.06/$1.97 from $1.24/$1.69, respectively.

The market has taken note of the upside, sending Western Refining shares up 3.8% to $28.74 early Monday. The consensus analyst price target is $24.91, but the 52-week trading range is $18.14 to $47.55.

The initial upside to the price target is one thing. That potential upside to the $40 longer-term upside for 2020 is another thing entirely.

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