Oppenheimer’s Fadel Gheit and Robert Du Boff have become the latest analysts to offer their opinion of refining stocks, when they downgraded Holly Frontier (HFC), Marathon Petroleum (MPC), Phillips 66 (PSX), Tesoro (TSO) and Valero (VLO) to Perform from Outperform today.
AFP Gheit and Du Boff explain their cuts:
We are lowering our ratings for refining stocks…on a deteriorating earnings outlook, and are removing our price targets for the stocks…We are cutting our 3Q13 earnings estimates for the group to reflect weaker market crack spreads, notably for gasoline, a narrowing Brent-WTI spread, and lower sequential margin capture rates. Margin capture should be down for a variety of reasons, including the cost of RINs (~$0.85/g, up slightly from 2Q13), planned and unplanned downtime, pipeline constraints, and the shift in the oil market structure from contango to backwardation, which implies higher crude acquisition costs relative to benchmark cracks. While we note crude differentials began to widen in September, this will not have a positive impact on the bottom line for the quarter because of the lag time in crude purchases, typically 1-2 months.
The cuts follow Citigroup’s upgrade of Valero and Tesoro on Oct. 2, and Deutsche Bank’s pessimistic outlook on refiners from Sept. 10.
Holly has dropped 0.4% to $41.63, Valero has gained 0.2% to $34.17, Tesoro has advanced 1.6% to $44.47, Phillips is off 0.9% at $59.03 and Marathon is up 0.2% at $65.36.
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