Phillips 66 (NYSE:PSX), Marathon Petroleum (NYSE:MPC) and Valero Energy (NYSE:VLO) all rank among Thursday's top gainers on the S&P 500 after UBS awards Buy ratings as part of a favorable view of the independent refinery group (CRAK), citing global refinery capacity reductions, the Russian products ban, and wider heavy/light differentials.
The UBS team said it prefers refiners with high margin capture, low operating expense per barrel, high EBITDA margin per barrel, diversification of earnings, high shareholder returns, and companies that did not cut dividends during the pandemic.
Phillips 66 (PSX) is initiated with a Buy rating and $139 price target, as UBS believes the 5% capture improvement and $0.75/bbl cost reduction management has put in place will make the company's refining more competitive and reverse some of the stock's underperformance during the past two years.
Marathon Petroleum (MPC) is started at Buy with a $165 PT, after paying out $19.3B to shareholders during the past two years, the highest among independent refiners, and UBS estimates the company will return ~$20.4B to shareholders over 2023-26, or 35% of market cap.
Valero Energy (VLO) also is launched as a Buy with a $176 PT, citing safe and reliable operations, with +95%-plus utilization; a lowest-cost fuel production process, as seen in opex/bbl $1.00-$1.50/bbl below peers; capital discipline, with capex trending below $2B; investing in high return refining projects; and rewarding shareholders with a 40%-50% payout ratio.
Phillips 66 (PSX) shares have lagged peers over the last five years, but its business is very profitable with a resilient business model, Douglas McKenny writes in an analysis published recently on Seeking Alpha.