Citing Oil Fears, Goldman Downgrades HollyFrontier To Sell

Goldman Sachs downgraded HollyFrontier Corp HFC to Sell from Neutral on crude spreads, valuation and consensus EPS risk. Goldman sees more upside to Buy-rated names: Valero Energy Corporation VLO, Marathon Petroleum Corp MPC and PBF Energy Inc PBF.

The brokerage also trimmed its price target on shares to $34 from $37, implying 11 percent return downside versus 8 percent upside to peers.

Analyst Neil Mehta in a note said, "We downgrade HollyFrontier (HFC) to Sell from Neutral given: (1) our expectation for low Mid-Con crude differentials such as Brent-WTI in a declining US oil production environment; (2) premium valuation after relative outperformance vs. other refiners in 2016; (3) potential pressure from higher RINs pricing; (4) downside risk to capital allocation/return expectations; and (5) potential 22%/26% downside to 2016-2017 consensus EPS."

Mehta expects Holly's capital return to decelerate from 2013-2015 cumulative levels of $2.7 billion to 2016-2018 levels of $1.8 billion, well below the $3.9 billion scenario analysis the company showed at its 2015 analyst day.

The analyst also slashed his 2016 EPS estimate to $2.44 from $2.64. Street analysts' consensus estimate calls for earnings of $3.14 a share.

Shares of HollyFrontier closed Tuesday about 7 percent higher at $38.36. In the pre-market hours, shares were down 2.24 percent at $37.50.