Goldman Sachs downgraded HollyFrontier Corp HFC to Sell from Neutral on crude spreads, valuation and consensus EPS risk. Goldman sees more upside to Buy-rated names: Valero Energy Corporation VLO, Marathon Petroleum Corp MPC and PBF Energy Inc PBF.
The brokerage also trimmed its price target on shares to $34 from $37, implying 11 percent return downside versus 8 percent upside to peers.
Analyst Neil Mehta in a note said, "We downgrade HollyFrontier (HFC) to Sell from Neutral given: (1) our expectation for low Mid-Con crude differentials such as Brent-WTI in a declining US oil production environment; (2) premium valuation after relative outperformance vs. other refiners in 2016; (3) potential pressure from higher RINs pricing; (4) downside risk to capital allocation/return expectations; and (5) potential 22%/26% downside to 2016-2017 consensus EPS."
Mehta expects Holly's capital return to decelerate from 2013-2015 cumulative levels of $2.7 billion to 2016-2018 levels of $1.8 billion, well below the $3.9 billion scenario analysis the company showed at its 2015 analyst day.
The analyst also slashed his 2016 EPS estimate to $2.44 from $2.64. Street analysts' consensus estimate calls for earnings of $3.14 a share.
Shares of HollyFrontier closed Tuesday about 7 percent higher at $38.36. In the pre-market hours, shares were down 2.24 percent at $37.50.
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