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Analyst Blog  

Tesoro Lowered to Sell Rating

May 27, 2009 | Comments: 3
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Our downgrade of Tesoro Corp. (TSO - Analyst Report) shares reflects our weak refining margin outlook. A growing supply overhang in the face of recession-induced fall in global oil product demand has led to a squeeze in refiners profits. Narrower crude quality spreads have also started to weigh on refining margins.

Tesoro's lack of geographic diversification given its West Coast-centric operating footprint and heavy exposure to the weak California market could also become a major liability. Given these headwinds, we expect the independent refiners to underperform the broader equity markets in general and the oil and gas group in particular.

Overall, we see a fairly unfavorable macro backdrop for independent refiners in general and Tesoro in particular. We believe this will cause an underperformance in Tesoro shares relative to the market as well as the sector in the coming quarters. Our new $13 price objective reflects 2009 P/CF multiple of 4.0, inline with the stock s historical trading range.

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181
days
ago
Cat wrote...
I agree with Antonio- quite a flip flop...The same went for a name I was watching called Sadia (SDA) which went from a strong buy to a sell overnight. Being a relative newbie I took the guidance ...SDA up 80% since.
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181
days
ago
Sheraz Mian wrote...
Antonio - I had made up my mind to downgrade TSO and the group (independent refiners) a few months back, but was waiting for the usual seasonal turnaround, which didn't materialize. And heavy West Coast leverage, an asset during the good times, could quickly become a liability as the regional refining outlook sours.
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181
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ago
Antonio wrote...
It is interesting how quickly the rating went from buy to sell...Though I do appreciate the robustness of the change. It just seemed rather odd that the mode on this stock changed so quickly and the biggest advantage became the biggest disadvantage.
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