Shares of oil and gas refiners post sharp losses following merger news from Valero Energy (VLO -8.5%) and Valero Energy Partners (VLP +6.7%), which prompted a new Sell rating on VLO from analysts at Goldman Sachs.
Goldman's Neil Mehta downgraded VLO to Sell from Neutral and cut his price target to $102 from $124, forecasting 18% downside to 2019 consensus earnings estimates given the company's lower leverage to inland crude differentials vs. tightening LLS-Maya trends and his reduced outlook for gasoline margins in the next 12 months.
Also likely affecting refiner shares is a WSJ report that the Trump administration is aiming to slow the rollout of new International Maritime Organization rules to power commercial ships; big U.S. refiners likely would be major beneficiaries from selling more higher-grade fuels.
Cowen analysts say the drop in refiner shares is overdone, as the White House does not have unilateral power to stop IMO 2020 implementation.
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