Time to get defensive on refiner shares, Raymond James says

Bullish sentiment on U.S. refining has become increasingly consensus, but the reality is that refiner shares have caught up to near-term expectations, Raymond James says.

Aside from general seasonality, the firm says it’s tough to paint a bullish picture for gasoline/diesel cracks amid the continued upward creep in global refining capacity; also, valuations are sitting near the top end of the historical range after the recent run-up in the sector.

The firm sees little 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, the firm cuts its ratings for Valero Energy (VLO -0.1%) to Outperform from Strong Buy, and Holly Frontier (HFC -1.3%), Delek US (DK -4.3%) and PBF Energy (PBF -0.8%) to Market Perform from Outperform; only “defensive, insulated” Phillips 66 (PSX -0.3%) gets an upgrade, to Outperform from Market Perform.

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Comments (4)
  • Michael Fitzsimmons
    , contributor
    Comments (11185) | Send Message
    And yet PSX is raised to Outperform. "Defensive and insulated" describes PSX perfectly. As I have been saying for some time now, PSX is quite possibly the best play on "Shale-USA" for reasons I list here:


    23 Jan 2014, 04:01 PM Reply Like
  • Trader's Profit Compass
    , contributor
    Comments (2072) | Send Message
    Agree on PSX. and i loved the article.


    RJF is a good house and usually does good work, but in this case i disagree.


    While RJF was writing up their down grades VLO was issuing Q4 guidance and projects Q4 EPS between 1.60 -1.80 vs 93c consensus. Additionally, today on the heels from this interim report the amateurs sold off VLO and it was down over $1.00 at one point......the pro's stepped in and bought it all afternoon and it closed up 30cents. Amateurs open, pro's close.
    IMO refiners have tail winds right now.......altho WTI / Brent spread has narrowed over last couple of days, its been consistently in the $12-16 range. plenty of spread there for refiners to make good margins and profitability.


    WTI has a better chance of seeing $80 this year than $105.....dont think this $95 mark is gonna hold for long. No Way the Saudis let Brent drop to under $100.


    I expect the sector to report strong earnings here in a couple of weeks.


    i am long most of the major refiners including VLO and PSX
    23 Jan 2014, 04:21 PM Reply Like
  • chopchop0
    , contributor
    Comments (5217) | Send Message
    agreed. ive always felt psx over vlo was the refiner to be in. Much more than just a simple refiner.
    23 Jan 2014, 08:18 PM Reply Like
  • scarman59
    , contributor
    Comments (50) | Send Message
    Also if anyone actually bothered to read the downgrade from RJF it still is calling for "outperform" for VLO with a target price of $63 a share. That is still another 20% increase from today's price so I'm still long.
    23 Jan 2014, 04:59 PM Reply Like
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