The last two months have been good to refining stocks like Valero Energy (VLO), Holly Frontier (HFC) and Phillips 66 (PSX)–maybe too good.
Bloomberg News Raymond James’ Cory Garcia and Pavel Molchanov explain:
Over the past two months, the bullish sentiment on U.S. refining has become increasingly consensus – in fact, some may even look at it as a "crowded trade". While we wouldn't quite go that far, particularly given our above-consensus outlook on earnings power in 2015, the simple reality is that the Street has caught up to our near-term expectations for refiners. Looking at the WTI-Brent spread, the futures strip is actually signaling a widening from ~$11/Bbl today towards $16/Bbl by 2016. Furthermore, investors are already positioned for the potential blowout in Gulf Coast spreads this spring. Aside from general seasonality, it's tough to paint a bullish picture for gasoline/diesel cracks amid the continued upward creep in global refining capacity. And after the recent run-up in the stocks, valuations are sitting near the top end of the historical range. Lastly, while we believe large-scale U.S. crude exports are still a long ways off, the debate in Washington has been gaining some momentum – an overhang for the stocks. So we don't see much in the way of near-term catalysts to drive the next leg up in refining stocks during the historically weaker summer months.
As a result, Garcia and Molchanov changed their rating on a number of refining stocks. Valero Energy gets cut to Outperfrom from Strong Buy, while Holly Frontier, Delek US (DK) and PBF Energy (PBF) get downgraded to Market Perform from Outperform. Only “defensive, insulated” Phillips 66 gets an upgraded, to Outperform from Market Perform.
Shares of Valero, which forecasted earnings above the analyst consensus after yesterday’s close, have dipped 0.1% to $50.91, while Holly Frontier has dropped 1.1% to $47.63, PBF Energy has fallen 1% to $27.31, Delek US has declined 4.9% to $30.92and Phillips 66 is off 0.3% at $76.91.
No comments:
Post a Comment