We are upgrading our recommendation on
) to Outperform from Neutral, owing to its improvement in
operational efficiency, high-return projects and lucrative
BP PLC (BP): Free Stock Analysis Report
TESORO CORP (TSO): Free Stock Analysis Report
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An independent refiner and marketer of refined petroleum products -
Tesoro operates in two segments: Refining (accounted for 93% of the
company's total 2011 operating income) and Retail (7%).
Tesoro performed impressively from April to June and posted
earnings per share of $2.87, breezing past the Zacks Consensus
Estimate of $2.28. Comparing year over year, the result jumped
73.9% from $1.65 per share. Quarterly revenue of $8,105.0 million
was up 1.8% year over year and was 17.5% above our projection. The
results were influenced by strong operations and favorable market
conditions along with benefits from acquisitions.
We also like Tesoro's solid long-term competitive position on the
supply-constrained California market. Following the conclusion of
the company's proposed acquisition of
) Southern California refining and marketing business, Tesoro will
control 60% of the refining capacity in that state, apart from
improving production flexibility.
Tesoro stands to benefit from its strategic initiatives that
include improving business processes, reducing operating costs,
enhancing the integration of the refining portfolio and investing
in organic growth.
The company is involved in a number of high-return projects that
are expected to be cost effective. These projects will not only
boost the company's competitive position among its peer group, but
will also provide significant earnings and cash flow growth
Following a hiatus of more than two years, Tesoro has recently
re-instated its dividend payout. The company also announced a $500
million share repurchase program. We believe that the resumption of
dividend and the buyback authorization not only highlights Tesoro's
commitment to create value for shareholders but also underlines the
company's confidence in its future earnings momentum.
Additionally, a major advantage for the company is the scale and
diversification benefits afforded by its portfolio of seven
Overall, we believe Tesoro is well positioned going forward and
view it as an attractive investment.