HollyFrontier Corp HFC notched an upgrade Friday from Morgan Stanley on projections of elevated inventories and the likelihood of higher demand due to the summer driving season.
The Analyst
Analyst Benny Wong upgraded shares of HollyFrontier from Underweight to Equal-weight and increased the price target from $48 to $60.
The Thesis
HollyFrontier is likely to report first-quarter earnings per share 30-percent below consensus, Wong said in a Friday note. (See the analyst's track record here.)
The company is scheduled to report before the open May 2.
Wong's deduction is based on an 8-percent sequential drop in the Morgan Stanley Crack Indicator to $13.18/barrel in Q1 and elevated gasoline inventory levels following robust refinery runs in the fourth quarter of 2017.
Capture rates came under pressure from heavy turnaround activity, especially on the West Coast, Wong said.
A strong gasoline demand pull is likely as the summer driving season begins, the analyst said. Gasoline inventories have been dropping 5 percent over the last six weeks, helping U.S. and global TARs approach their peak, and gasoline exports have inflected higher, according to Morgan Stanley.
The analyst said his estimates for HollyFrontier are about 20 percent above consensus for the second quarter.
Morgan Stanley expects midcontinent differentials that are likely to persist through 2018 to sweeten the deal, as takeaway constraints in Midland, Texas and Canada continue.
The sell-side firm raised its 2018 EBITDA assumption to 34 percent above the consensus.
The Price Action
HollyFrontier shares have nearly doubled over the past year.
The stock was up 1.44 percent after the open Friday at $54.99.
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