Valero Energy (VLO +0.4%) rises as much as 2.7% after Morgan Stanley calls the stock its Top Pick among U.S. refiners, reiterating its $100 price target, amid a setup for the refining industry that looks "increasingly compelling [and] less priced-in" compared with some other areas of the energy value chain.
Valero is the most pure-play large-cap within the group, and the company "will continue to execute and drive substantial earnings growth as the refining cycle advances," according to Morgan Stanley analyst Connor Lynagh.
While acknowledging industry-wide risks related to the Russia-Ukraine war, "the potential upside to margins from supply reductions and cost impacts on European refineries drive significant cost advantages for U.S. refiners," Lynagh writes, and meetings with Valero suggested the company "has a strong ability to manage potential volatility and has already begun adapting to existing and potential market dislocations."
Lynagh also believes Valero's "advantaged position on the biofuels cost curve positions it well to continue to extract significant value from this business."
U.S. refiners stand to benefit from self-sanctioning, as oil product exports from Russia appear to have fallen by ~1M bbl/day since the invasion of Ukraine.