Market Overview

JPMorgan Upgrades Valero Energy, Sees Positive Outlook For Texas Gulf Coast Refiners

JPMorgan Upgrades Valero Energy, Sees Positive Outlook For Texas Gulf Coast Refiners

JPMorgan is raising its second-quarter estimates for Valero Energy Corporation (NYSE: VLO) by about 13 percent to incorporate strong quarter-to-date trends and a fundamental outlook the sell-side firm said is better than in the past six months.

The Analyst

Phil Gresh upgraded Valero Energy from Neutral to Overweight and raised the price target from $102 to $105.

The Thesis

Refining companies are currently faced with macro challenges that include trade tensions between the U.S. and China and some global refining capacity coming back from maintenance, Gresh said in the Tuesday upgrade note. (See his track record here.) 

Yet the outlook for Texas Gulf Coast refiners appears brighter due to the prospects of widening coastal light crude differentials, the analyst said. 

New Permian pipelines are set to go online during the second half of 2019 and through 2020, according to JPMorgan.

The increased crude flows from the Permian to the Texas Gulf Coast could result in a widening of differentials between the Houston crude benchmark and the Brent, Gresh said. 

This situation may prove “particularly positive” for refiners with exposure to Corpus Christi, where inbound pipes could significantly exceed local demand and crude export capacity for some time to come, the analyst said. 

Within the refining sector, Valero Energy has continued with strong execution, FCF generation and capital allocation discipline, he said, adding that the company has the most exposure in the sector to Corpus Christi.

While there are some projects underway that could prevent the margin expansion that Southwestern refiners have achieved over the past several years, this would likely be most negative for Delek US Holdings Inc (NYSE: DK) and HollyFrontier Corp (NYSE: HFC), according to JPMorgan. 

Price Action

Valero shares were up 3.22 percent at $83.10 at the time of publication Tuesday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For May 14, 2019

5 Biggest Price Target Changes For Monday

Public domain photo via Wikimedia

Latest Ratings for VLO

Jun 2019UpgradesNeutralBuy
May 2019UpgradesNeutralOverweight
Apr 2019MaintainsOutperformOutperform

View More Analyst Ratings for VLO
View the Latest Analyst Ratings

Posted-In: JPMorgan Oil Permian Phil GreshAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga


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