We issued an updated research report on independent refiner Tesoro Corporation TSO on May 27, 2015. Being a buyer of crude, Tesoro looks favorably positioned to benefit from the weak crude pricing environment. However, the Environmental Protection Agency’s (EPA) proposed new gasoline standards are expected to significantly increase capital expenditures for refiners like Tesoro, thereby reducing their future earnings and cash flows.
The balanced view is reflected in Tesoro’s current Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Tesoro is one of the largest independent oil refiners in the U.S. with a combined crude oil processing capacity of approximately 850,000 Bbl/d. A major advantage for the company is the scale and diversification benefits afforded by its portfolio of six refineries.
Most importantly, with Tesoro being buyer of crude – which has seen soft trading since last June – its profitability has been favorably impacted by a fall in the input cost. Operators like Tesoro are expected to benefit from this low oil price environment.
However, in an effort to reduce pollution, the EPA recently outlined a proposal that would require refiners to significantly reduce sulphur content in gasoline starting from 2017. To comply with the new standards, Tesoro will have to increase its capital expenditure, which will adversely impact earnings and cash flows.
On May 7, 2015, the company reported first-quarter adjusted earnings from continuing operations of 98 cents per share, which came in substantially below the Zacks Consensus Estimate of $1.21. Labor disruptions, planned maintenance activities and extended downtime, hampered the results.
Stocks to Consider
Some better-ranked players in the energy sector are LRR Energy LP LRE, Pembina Pipeline Corporation PBA and Transmontaigne Partners LP TLP. All these stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment