While crude oil pricing has been a cruel mistress for the large integrateds and the independent exploration and production companies, it has been serving the refiners quite well, thank you. A combination of increased gasoline usage and refinery maintenance, then toss in a recent huge fire at the ExxonMobil’s Torrance, Calif., facility, and you have the perfect storm for the top companies. In a new report from Deutsche Bank, the firm raises the price targets on some of the top stocks to buy.
The analysts concede that while the proverbial tide will lift all boats, they see the greatest benefit accruing to those with meaningful Gulf Coast flexibility and a widening spread between Brent and West Texas Intermediate.
Here are the four top refiners to buy now at Deutsche Bank.
Marathon Petroleum Corp. (NYSE: MPC) is a top refining name investors can buy now in hopes of substantial gains down the road. Marathon has a diversified business, which operates through Refining & Marketing, Speedway, and Pipeline Transportation segments. The company owns and operates seven refineries in the Gulf Coast and Midwest regions of the United States that refine crude oil and other feedstocks. It distributes refined products through barges, terminals and trucks, as well as purchases ethanol and refined products for resale.
Marathon shareholders are paid a 1.9% dividend. The Deutsche Bank price target on the stock goes from $105 to $118. The Thomson/First Call consensus price target is much lower at $109.78. Shares closed Thursday at $105.65.
Phillips 66 (NYSE: PSX) recently sold three pipeline systems to its partnership company Phillips 66 Partners, in order to expand operations in Texas. Phillips 66 will receive a total of $1.01 billion from this transaction. The company has a geographically diversified presence in the refining business. The company’s 15 refineries not only enable it to participate in various market opportunities but also provide an advantage over region-specific competitors. In addition, most of Phillips 66’s refineries are integrated with transportation, marketing and commercial operations that provide crude supply flexibility.
Phillips 66 investors are paid a respectable 2.6% dividend. The Deutsche Bank price objective is raised to $93 from $92. The consensus target is $85.31, and the stock closed Thursday at $77.43 a share.
Tesoro Corp. (NYSE: TSO) is an independent refiner and marketer of petroleum products. Tesoro, through its subsidiaries, operates six refineries in the western United States with a combined capacity of over 850,000 barrels per day and ownership in a logistics business, which includes a 36% interest in Tesoro Logistics and ownership of its general partner. Tesoro’s retail-marketing system includes more than 2,200 retail stations under the ARCO, Shell, Exxon, Mobil, USA Gasoline and Tesoro brands.
Tesoro investors receive a 1.88% dividend. The Deutsche Bank price target is raised from $103 to $108. The consensus target is $93.33. Shares ending trading on Thursday at $90.53.
Valero Energy Corp. (NYSE: VLO) has 56% of companywide refining capacity located in the U.S. Gulf Coast, which makes Valero well positioned to benefit from the ongoing infrastructure debottlenecking of inland crude oil supply in 2015 and beyond. Some Wall Street estimates have the company generating an astounding free cash flow compounded annual growth rate of 24% during the period from now to 2016.
Valero investors are paid a 2.7% dividend. Deutsche Bank raises the stock from a Hold to a Buy rating and lifts the price target from $60 to $70. The consensus target is $60.62. Shares closed Thursday at $60.18.
In an energy sector that has struggled, the refiners have shined, and the Deutsche Bank team has been spot-on in its assessment of these top stocks. Investors looking to buy may want to scale in capital and wait for a pullback to complete the purchase.
Sponsored: Find a Qualified Financial Advisor
Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.