Thursday, September 1, 2011

RBC on Refining: "Tesoro's Margins Could Soar" (TSO)

The stock closed at $24.06.
Remember though, the company is not the stock. See links and chart below.
From Barron's Hot Research:
The refiner will benefit the most as margins rise in the region.

Tesoro (TSO: NYSE)
By RBC Capital Markets ($25.53, Aug. 31, 2011)
We expect a very high level of West Coast maintenance planned in October to increase refining margins in the region.

Tesoro (ticker: TSO) should benefit the most, and we have upgraded our rating on the stock from Sector Perform to Outperform. We are raising our price target from $28 to $30.

Refinery downtime on the West Coast in October 2011 is forecast to be at the highest monthly level since March 2007, and we expect lower supply to increase West Coast refining margins and Tesoro's share prices as has occurred during prior heavy-maintenance months.

We are increasing our earnings-per-share estimates for the third quarter from $1.15 to $1.45. We are also raising our EPS estimates for 2011 from $4.60 to $5.45, and for 2012 from $3.00 to $3.50....MORE
We've been pointing out the downstream businesses rather than the oil producers since about the first of the year:
February 18 
"Refining Profits Aren't Just a Pipe Dream" (FTO; VLO;TSO)

May 10 
President Obama and Crack (spreads) VLO; TSO; MRO; XOM
...Here's the EIA's list of the largest U.S. refineries, of the purer plays (fewer upstream operations) Tesoro has the best looking stock set up.
July 7 
"Barclays: Expect Surprises Among Refiners This Quarter" (MRO; TSO; VLO)

August 23 
Oh, It's Good to Be a Refiner (VLO; TSO; MPC; WNR; DK; ALJ; CVI)
The question is "How much has the market already priced in?". Looking at the chart

we see the August double bottom, usually a nice sign but in this case the stock has better than doubled in twelve months.

Being a big chicken I'd wait for a breakout above that July 26 closing high of $25.34 and maybe even some prints above the same day's intraday high of $25.79.