Deutsche Bank Sees 2015 Bounce For U.S. Oil Refiners

With oil prices in bear territory and expected to slide still lower, an Deutsche Bank's Ryan Todd launched coverage of seven U.S. refiners Thursday with a mixed take on each company's prospects.

U.S. refiners' share prices got dragged down sharply this year by a narrowing price gap between the once-cheaper West Texas Intermediate crude oil on which they rely, and the global benchmark Brent Crude from the North Sea.

Todd said the disappearing price advantage is "set to resume next year," resulting in a bounce for U.S. refiners.

Todd's "top pick" is Marathon Petroleum Corp. MPC, but he also recommends Valero Energy Corp. VLO, Tesoro Corp. TSO and Delek US Holdings, Inc. DK.

Todd hung a target of $103 a share on Marathon, whose shares are down more than 10 percent in the year to date. The company offers "one of the most-balanced investment cases" and a chance to capture advantage from widening spread between Brent and West Texas pricing. Todd also applauded its policy of returning excess cash to shareholders.

Valero gets a $60 target from Todd, who likes the company's positioning for increasing medium crude competition, growing access to Canadian products as well as its flexibility for exports.

Todd painted an $81 price target on Tesoro and said its recent $2.4 billion acquisition of Carson oil refinery from BP PLC BP is "under-appreciated."

Tesoro is "primed to show the greatest incremental growth" in operating earnings among comparable refiners, Todd said.

Delek gets a target of $45 a share, and Todd thinks the company will be cutting its capital spending and looking for things to do with resulting excess cash.

Another possiblity: a significant acquisition that "could be well-received by the market," Todd said.