Credit Suisse Downgrades Tesoro Away From Outperform

Credit Suisse has downgraded the shares of Tesoro Corporation

to a Neutral rating from Outperform blaming the supply outstripping the demand. The brokerage also lowered its price target by 14 percent. "Earnings have changed from boom to below mid cycle in one year. The narrative of 2016 earnings delivery is that refiners have adjusted to strong gasoline demand, helped by a warm winter and high diesel inventories. Yes, we and others have been talking about earnings shortfalls since March but the net result has been an earnings downgrade cycle all year. Our 2Q forecasts had been below consensus but now seem too high," wrote analysts, Edward Westlake, and Johannes Van Der Tuin, in a research note. Credit Suisse also lowered their second quarter estimation for Tesoro. Accordingly, it now lowered its EBITDA outlook by 20 percent for the second quarter. The brokerage believes that the third quarter should be somewhat better than the second quarter. However, the fourth quarter looks seasonally tough. Therefore, the net effect is that annual EBITDA for the group might drop 30% in the current year from the levels achieved in 2015 as oil demand has risen by some 1.5 mb/d. The two analysts also referred about the divergent views for the year 2017, i.e. if there is recession or no recession. However, they have also expressed their confidence that by November, recession risks and/or the required drawdown in excess product inventory would be clear. Shares of the company traded 0.74 percent higher on Wednesday.