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Citigroup Picks Favorites In U.S. Refining & Marketing; Upgrades Marathon Petroleum And Hollyfrontier

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In a note released early Friday morning, Citigroup analyst, Faisal Khan provided an outlook on the U.S. Refining and Marketing sector.

Although Khan admitted August and September are typically "sloppy" months of U.S. refining stock, he said he is moving to a "more bullish view."

As a basis for his optimism, Khan listed four key factors:

  1. Continued growth in U.S. and Canadian oil production.
  2. Oil prices appear "sticky" due to volatility in the Middle East.
  3. U.S. oil price differentials appear "somewhat contained" at five to 10 dollars per barrel. Said the current balance between producer net backs and refining feed stock discounts are at a constructive level.
  4. Headway on refining closures in the Atlantic basin is only a matter of time.

Favorites

  • Valero Energy (NYSE: VLO) - Buy, $63 price target.

    Khan continues to view greater feedstock discounts at Valero's high conversion refineries as a result of crude-on-crude competition in the U.S. Gulf Coast as a positive for the stock. Moreover, he believes Valero will be the "prime beneficiary" of incremental heavy and medium crude supply on the Gulf Coast.

    Western Refining (NYSE: WNR) - Buy, $55 price target.

  • Khan has reiterated his rating and price target on Western due to its restructuring potential. He believes Western could follow the lead of peers, such as Williams companies, who have unlocked greater dividends and dividend growth through a master limited partnership.

    Upgrades

    • Marathon Petroleum (NYSE: MPC) - from Neutral to Buy, price target from $96 to $94.

      Speaking on Marathon's strategy to diversify its cash flows, Khan wrote, "Marathon Petroleum Corporation has decided to acquire Hess' retail assets at a cost of ~$2.8 billion. In 2013, Hess's retail assets generated ~$175 million in EBITDA and Marathon expects to double this by the end 2017."

      HollyFrontier (NYSE: HFC) - from Sell to Neutral, price target from $42 to $40.

    • Khan believes there is still downside to the HollyFrontier. However, he noted that the company's current and special dividends make his absolute return slight positive.

      "We continue to be cautious on crude price differentials in the mid-continent as crude oil continues to flow to the Gulf Coast," warned Khan.

      Downgrades

      • Alon USA Partners LP (NYSE: ALDW) - from Buy to Neutral, price target $19.

        "Going forward, we believe Midland to Cushing differentials will narrow with the start of new pipeline capacity during the next several months," said Khan.

Latest Ratings for WNR

DateFirmActionFromTo
Mar 2017Credit SuisseDowngradesNeutral
Nov 2016Wolfe ResearchDowngradesOutperformPeer Perform
Nov 2016RBC CapitalDowngradesOutperformSector Perform

View More Analyst Ratings for WNR
View the Latest Analyst Ratings

 

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Posted-In: CitigroupAnalyst Color News Upgrades Downgrades Price Target Reiteration Analyst Ratings

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