The stocks of most U.S. refiners are trading significantly below their mid-cycle valuations, while the companies likely are heading into another strong U.S. gasoline season, BoA Merrill Lynch analyst Doug Leggate says as he upgrades several stocks in the group.
Leggate says he continues to view refiners as a volatile sector where momentum follows margin trends, but that the balance of risk has moved in favor of a short-term rebound.
Marathon Petroleum (MPC +7.4%) is upgraded to Buy from Neutral with a $50 price target, believing the MLP overhang on the shares is overdone and noting that MPC indicated it would do what needs to be done to support MPLX because it is optimistic about the long-term growth opportunities of the business.
Tesoro (TSO +4%) also is upgraded to Buy from Neutral with a $116 target, anticipating that once winter margin weakness subsides, TSO likely follows summer margin strength higher as the most exposed refiner to seasonal west coast trends.
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