Energy Business

Jefferies Upgrades Refiners as Many Top Stocks Now Down 50% or More

Despite a plan to spin-off Speedway, the company announced in late February it would invest $550 million in the chain. The investment will focus primarily on converting convenience stores the company added to its portfolio through several acquisitions over the past two years — notably, its strategic combination with San Antonio-based Andeavor in the fall of 2018 — to Speedway’s branding and systems.

The company bought rival Andeavor for $23.3 billion in the biggest-ever deal for an oil refiner, creating the largest independent fuel maker in the United States. It was one of the biggest mergers in 2018. Following the deal, Marathon became the largest operator of refining capacity in the United States, and management believes the company can achieve the $1 billion in synergies that it suggests.

Shareholders receive a robust 10.02% dividend. Jefferies has a $51 price target, while the consensus target is a much higher $61.40. Marathon Petroleum stock closed Thursday at $23.14, after climbing close to 10% on the day.

Phillips 66

This extremely diversified energy company has a long and successful operating history. Phillips 66 (NYSE: PSX) operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties. The company holds many of these assets within its master limited partnership, Phillips 66 Partners.

The company is able to benefit from the tax-advantaged structure while still operating a more diversified operating business that also contains many assets that aren’t ideal master limited partnership assets, such as its fast-growing chemical manufacturing business and its super-profitable refined products marketing business.

Note that Phillips 66 has one of the highest paid CEOs in America.

The dividend yield is 6.61%. The $73 Jefferies price target compares to the $100.18 consensus target. Phillips 66 stock closed at $54.39, almost 8% higher on Thursday.

Valero Energy

This Wall Street favorite is a very solid energy play for more conservative balanced accounts. Valero Energy Corp. (NYSE: VLO) is one of the largest independent petroleum refining and marketing companies in the United States. It is based in San Antonio, Texas; owns 13 refineries in the United States, Canada and Europe; and has a total throughput capacity of around 2.5 million barrels per day.

Valero also is a joint venture partner in Diamond Green Diesel, which operates a renewable diesel plant in Norco, Louisiana. Diamond Green Diesel is North America’s largest biomass-based diesel plant.

Valero sells its products in the wholesale rack or bulk markets in the United States, Canada, the United Kingdom, Ireland and Latin America. Approximately 7,400 outlets carry Valero’s brand names.

Investors receive an 8.60% dividend. The Jefferies price target is $5. The consensus target is $89.47, and Valero Energy stock was last seen at $45.60, up a stunning 15% on the day.

These top stocks have been absolutely crushed. All come with solid, dependable dividends, which at least for now look safe, and they offer investors a way to play the energy sell-off with a much lower risk profile. For balanced accounts looking for growth and income, these are outstanding picks. Plus, it should be noted that the much higher Wall Street consensus numbers likely will come down fast, so the Jefferies targets are far more realistic.

Investors seeking exposure to energy through the large-cap integrated companies may want to see which stocks are favored across Wall Street in a report we posted earlier this week.