Morgan Stanley swaps Tesoro for Valero in cautious view on refiners
Tesoro (TSO +0.6%) is upgraded to Overweight from Equal Weight with a $110 price target, raised from $100, at Morgan Stanley, which sees downside risk to U.S. refining margins heading into the summer and as much as 25% negative earnings revisions in Q2.
The firm notes global turnarounds are exiting peak maintenance activity, with ~2M bbl/day of refining capacity coming back online by the end of June, "driving greater risk of an oversupplied domestic market."
Stanley seeks to boost exposure to non-refining earnings and valuation upside by switching between two San Antonio-based refiners, upgrading TSO while downgrading Valero (VLO -1.1%) to Equal Weight and cutting its price target to $70 from $77.
On TSO, Stanley points to several catalysts including its acquisition of Western Refining, which should diversify the company's growth opportunities, and it expects TSO to outperform in its next earnings report and boost its stock price with a planned share buyback strategy in H2 of this year.
