Sector Snap: Refiners Shares Slip
Monday March 26, 12:38 pm ET
Tesoro, Sunoco Shares Take Hit From Analyst's Outlook for Weaker Refining Margins
NEW YORK (AP) -- Shares of oil refiners Tesoro Corp. and Sunoco Inc. took a hit Monday from analyst forecasts for weaker refining margins in coming weeks.
On an expectation that refining margins are poised to fall, Deutsche Bank analyst Paul Sankey downgraded shares of Tesoro and Sunoco. Tesoro shares are now "fully valued," he said, following steep climb in the stock price in recent months. He cut the stock to "Sell," as shares have overshot his $85 price target.
For similar reasons, Sankey lowered shares of refiner Sunoco to "Hold" after the stock hit his $72 price target.
Sankey said he believes "the long term investment case for refining is poor, that the medium term is risky and that the stocks should be traded on a short-term basis."
"Huge" crack spreads -- the difference between the cost of crude and the price at which refined products are sold -- have boosted refiners' shares in recent months, he said.
Sankey expects refiners' crack spreads to narrow in coming weeks as refiners end seasonal maintenance and increase their output. Crack spreads on the West Coast, a key market for San Antonio-based Tesoro, have already slid about $10 a barrel after a recent $40-a-barrel peak.
"We believe margins will fall in the near term, before settling in at a historically high level," he wrote in a note to clients.
Bear Stearns analyst Nicole Decker cut her ratings on Tesoro to "Peer Perform" from "Outperform," or "Buy." The margin-boosting effects of refinery outages and maintenance shutdowns are expected to wind down in coming weeks, leading to slimmer margins.
Shares of Tesoro slipped $1.78 to $99.06 in midday trading on the New York Stock Exchange. The stock has surged 53 percent since the start of the year to close above $100 on Friday.
Sunoco, based in Philadelphia, saw its shares shed $1.26 to $69.91 on the Big Board.
Elsewhere in the sector, shares of Valero Energy Corp. gained 22 cents to $63.87, while shares of Frontier Oil Corp. fell 18 cents to $32.90. Holly Corp. shares slipped $1.10 to $60.27.
A decline in the broader market amid weak housing data also pulled shares of refiners and other energy companies lower.
Oil prices gained 70 cents Monday to $62.98 a barrel on the New York Mercantile Exchange, after earlier climbing above $63.
