Credit Suisse said: "1Q Wobbles Less Important Than Narrowing
Crude Diffs; Take Some Profits; DOWNGRADING PBF Energy (
) to NEUTRAL (from Outperform); Lowering TP for PBF."
Bottom Line: "March refining margins ended on a weaker note than
expected. This weak finish, inclusion of RIN costs, and greater
than expected 1Q maintenance cuts our 2013 EPS. But more important
are the narrowing domestic crude differentials (WTI, WCS, Bakken,
Midland). We believe this narrowing is symptomatic of the
infrastructure build out that is starting to alleviate Mid-Con
crude bottlenecks. We lower 2013 EPS by 4% across the group. There
is less change to 2014/15 - the 2013 narrowing just represents an
earlier normalization than we had assumed. It appears
seasonal/unplanned downtime at HollyFrontier Corp (
), TSO, Western Refining, Inc (
), PBF has been larger than expected. Maintenance could be a 1Q
issue across the group.
"So where next? The group responded well to 4Q beats so
yesterday's sell-off makes some sense. Despite a good outlook for
the Gulf, the group should also struggle against the headwinds of
narrowing crude spreads in 2013 as infrastructure finally arrives.
Preferring "Gulf" coastal and/or stocks with catalysts has been our
mantra - Marathon Petroleum Corp (
), Tesoro Corporation (
) still fit the bill."
Downgrade PBF to Neutral (From Outperform): "PBF is one of the
more levered to good or bad times. A faster normalization of
Mid-Con crude discounts reduces EBITDA by 24% in 2013, 9% in 2014.
We lower our recommendation to Neutral and TP to $37/sh (from
Longer Term Earnings Power Intact? "Incorporating RIN costs, a
$10/bbl WTI-Brent spread and weaker international margins,
mid-cycle FCF remains decent but our 2014 EPS are below consensus
notably for the Mid-Con group."
Stick With Well Capitalized Players That Have More Than One Way
to Win: "With mpg standards rising, biofuel mandates, natural gas
vehicles representing demand threats, we believe the well
capitalized players, particularly with Gulf Coast refineries that
can benefit from rising Texas/Gulf crude production and export
excess product, which also have logistic options (and chemicals
i.e. at Phillips (PSX) should outperform. Despite a weak 1Q for
TSO, the potential closure of Carson and strong free cash
generation suggests sticking with the shares. MPC should benefit
from DHOUP and TX City, PSX from further consensus earnings power