While most oil stocks have bounced back in 2016, U.S. refiner oil stocks have had an abysmal year so far.
Goldman Sachs analyst Neil Mehta recently took a deep dive into refinersMarathon Petroleum Corp (MPC), Phillips 66(PSX), Tesoro Corporation (TSO),Valero Energy Corporation (VLO),HollyFrontier Corp(HFC), CVR Energy, Inc. (CVI) and CVR Refining LP (CVRR) and gave each stock a thumbs up or a thumbs down for investors.
So what did he think about each one? Read on to find out.
Oil Stocks to Buy: Marathon Petroleum Corp (MPC)
Goldman loves the diversification into nonrefining segments at MPC. Mehta predicts that MPC’s retail segment will provide an excellent hedge against rising Renewable Identification Number (RIN) prices and should see a boost from solid gasoline demand growth throughout the rest of 2016.
In addition, Goldman prefers coastal refiner oil stocks to mid-con refiners and notes that MPLX LP (MPLX) is up 96% from its February lows.
Goldman maintains a “buy” rating and a $44 price target for MPC.
Oil Stocks to Sell: Phillips 66 (PSX)
Mehta likes PSX management and praises the company’s nonrefining assets. In addition, Goldman likes the company’s potential for M&A as well. In fact, the firm includes a 15% M&A probability in its valuation.
Unfortunately, based on the Goldman’s sum-of-the-parts (SOTP) analysis, PSX’s $74 valuation represents significant downside from the stock’s recent share price. Of the six independent refiner oil stocks with market caps above $2 billion, PSX currently trades at by far the highest implied 2017 refining EV/EBITDA multiple (over 6x).
Due to its lofty valuation, Goldman maintains a “sell” rating on PSX.
Oil Stocks to Buy: Tesoro Corporation (TSO)
Mehta sees several reasons to like TSO. First, Goldman has a positive outlook for the California refining market. The firm also believes that TSO’s non-refining segments are underappreciated by the market.
TSO has limited risk from rising RINs and sports an attractive valuation on both a P/E and EV/EBITDA basis. Mehta estimates that the market is currently valuing TSO’s core refining business at only 2 EV/EBITDA. Goldman is projecting that TSO’s retail/marketing segment will achieve 9% CAGR from 2016 to 2019 due to store improvements, higher RINs and adding hundreds of new store locations.
Goldman has upgraded TSO from “neutral” to “buy” and has a $100 price target on the oil stock.
Oil Stocks to Buy: Valero Energy Corporation (VLO)
VLO is…
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