Tesoro A Buy At Goldman Sachs, Sees 39% 6-Month Upside

Barclays’ Neil Mehta believes Tesoro Corporation TSO is attractively valued at present, with potential for 39 percent upside over the next six months.

Mehta upgraded the rating on the company from Neutral to Buy, while raising the price target from $96 to $100.

Constructive Outlook

Apart from the upside potential, the analyst explained that the upgrade was based on “(1) a constructive outlook for the California refining market, despite the return of Torrance; (2) underappreciated value in non-refining segments, including the retail and midstream business segments; (3) limited risk from higher RINs and lower Brent-WTI.”

Related Link: Goldman: 3 Oil Refiners To Buy And 4 To Sell

Mehta believes the California refining market will remain well-balanced, despite Torrance returning to service, driven by growing regional demand and the currently low inventories.

Therefore, the analyst expects the 2016 and 2017 estimates to be more achievable for Tesoro than the industry average.

Attractive Value

Mehta also believes there is attractive value in midstream and marketing for Tesoro, and investors have not been giving the stock fair value for its non-refining businesses.

The retail/marketing business is expected to see growth, both organic and through acquisition, at a CAGR of 9 percent during 2016–2019, driven by store improvements, higher RINs prices and the addition of 350 new stores by 2018.

The analyst also believes the company is better protected than its peers from RINs and low Brent-WTI.

At time of writing, Tesoro was up 2.12 percent on the day, trading at $75.59.