Deutsche Bank Maintains Buy on Ashland Following Industry-Wide Lowering of Oil Prices

Deutsche Bank has published a research report on Ashland

after the announcement that Motiva lowered Group II base oil price by $0.43/gallon. In the report, Deutsche Bank writes, "As we noted in our November 30 Alert ("Lower base oil prices, solid Oct. trends bode well for F'12"), we believe the decline in base oil prices, the first base oil price decrease since April 2009, signals a loosening of supply/demand which had been unusually tight since June 2011. Downward pressure on US base oil prices is being driven by increased imports as prices in Europe and Asia are below US levels. With base oil supply/demand continuing to loosen ahead of modest capacity additions in 2012 (and larger additions in 2013) and Valvoline on track to fully recapture 2011 base oil price increases in the December quarter, we expect lower base oil prices to expand Valvoline margins starting in the March 2012 quarter. For Valvoline, which purchases ~170MM gallons/year of primarily Group II base oil, we estimate the annualized earnings impact of a $0.43/gal base oil price decrease could be $73MM, or $0.63/share." Deutsche Bank maintains its Buy rating and $65 price target on Ashland, which is currently trading down $0.47 from yesterday's $53.07 closing price.