RBC Starts Northern Tier At Buy, Western Refining At Perform: Here's Why

In separate reports published Thursday, RBC Capital Markets analyst Brad Heffern initiated coverage of two stocks in the Integrated Oils sector, citing their solid assets. The analyst initiated

with an Outperform rating and a price target of $30. Brad Heffern believes that Northern Tier Energy's refinery has "one of the most advantaged crude slates in the US." This is among the highest margin refineries in the US mainly on account of its pipeline access to local Bakken and Canadian crudes. In the report RBC Capital Markets noted, "St. Paul Park [Northern Tier Energy's sole refinery] avoids some of the typical issues of inland refineries through its tight integration with NTI's regional retail network as well as access to Magellan's product distribution system." Heffern considers Northern Tier Energy's units as "undervalued," saying that this was "likely due to a general lack of investor interest in the variable-rate MLP refiner structure, as well as NTI's dependence on only one refinery." RBC Capital Markets initiated coverage of

with a Sector Perform rating and a price target of $48. Analyst Brad Heffern believes that Western Refining has "an impressive asset portfolio, with two of the most advantaged refineries in the US and access to local growing crude supplies in the Permian and Four Corners Basins." Moreover, the midstream infrastructure being built out over the past few years "should help back out more expensive and inconsistent Midland barrels." Heffern expect this to result in gradual expansion of Western Refining's refining margins through 2017. The report pointed out, however, that Western Refining was "caught between two opposing strategic directions" – to purchase the remaining 62 percent of Northern Tier Energy or to sell its refineries to Northern Tier Energy. "We only support the first option, and uncertainty could be an overhang in the medium term," Heffern added.