Deutsche Bank Downgrades Valero Energy

Deutsche Bank downgraded Valero Energy Corporation VLO Thursday from Buy to Hold and cit its price target from $63 to $59.

Analyst Ryan Todd noted that the downgrade was “two-pronged: valuation...and our more cautious view on the sector in 2015. Concerns around persistent weakness in Gulf Coast refining margins (and expected product export competition from Asian refiners in 2015) coupled with currently narrow WTI-Brent differentials keep us on the sidelines for now.”

Todd saw “strong upside in VLO’s shares (~25 percent based on our price target of $59), recent outperformance in the shares, coupled with our more cautious view on the sector pushes us to a Hold on the name. We see more attractive (more defensive and similar to higher upside) investment cases elsewhere in the group.”

“Gulf Coast refining margins have seen weakness (distillates recently dropping off) throughout the current quarter. Although some seasonal factors are at play, investors would like to see 4Q levels of product exports (seasonally strong export quarter) and sustainability of strong capture rates seen in 3Q (narrowing crude differentials will act as an offset at the very least),” according to the analyst report.

Todd concluded, “Looking forward, some investors remain concerned around competition from Middle Eastern/Asian exports in 2015; although we believe the call on European refining rationalization isn’t too significant over the medium-term, we believe all in all, it’s a good time to stay more cautious on the sector and on VLO, a levered refining play.”

Valero Energy Corporation recently traded at $46.41, down 2.89 percent.