Credit Suisse says: "Important Year but Less Upside than Peers;
REINSTATING Coverage with a NEUTRAL (prev Outperform) Rating with a
TP of $45."
Bottom Line: "We reinstate coverage of VLO with a $45 target
price but a Neutral rating. We believe that 2013 will be important
for VLO owing to a surge in crude moving down to the Gulf and to
the contribution of VLO's hydrocrackers (around $1bn-plus of
EBITDA). Widening Gulf crude discounts and hydrocracker EBITDA in
2H13 provide offsets to the headwinds of narrower WTI-Brent
spreads, lower expected international margins, the dreaded RINs and
somewhat narrower near-term heavy crude differentials. VLO has
decent upside at current levels, but less than our preferred
Gulf Is Good, but VLO Has Less High Multiple Assets than Peers:
"Logistics and retail form a much higher weight in peers'
enterprise value than at VLO. When we strip these high multiple
businesses out of the group, the peers trade on 2.3-3.6x our
mid-cycle EBITDA compared with VLO on 3.6x. None of these multiples
are expensive, but VLO is at the higher end of the group."
Less Free Cash Generation Also: "Despite a view that Gulf Coast
crudes will fall in price to the benefit of VLO, we forecast lower
free cash generation at VLO while the company invests in self-help
projects. Lower free cash generation and a more levered balance
sheet suggest there is less room for buybacks versus peers."
What Could Change Our View: "VLO has the most leverage to the
possibility that surging supply from the Eagle Ford, Permian, and
Cushing pipes will drive Texas crude prices well below Brent.
However, this needs to be balanced versus the under-appreciation of
logistic assets within peers."