) hit a 52-week high of $63.43 on Aug 8. In fact, the San Antonio,
TX-based independent refiner has seen its stock price climb some 7%
since reporting second quarter results on Jul 30. Though the
downstream operator missed earnings estimates, it increased its
quarterly dividend and announced a $1 billion stock repurchase
Why the Bullishness?
Tesoro is one 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. Additionally, Tesoro holds certain midstream pipeline
and logistics assets, operated by its 35%-owned partnership Tesoro
Logistics L.P. (
We also like Tesoro's solid long-term competitive position on the
supply-constrained California market. With the conclusion of the
company's proposed acquisition of BP Plc's (
) Southern California refining and marketing business, Tesoro now
controls 60% of the refining capacity in that state, apart from
improving production flexibility.
Following the re-instatement of its dividend payout after hiatus of
more than two years, Tesoro has been increasing the same in regular
intervals, the latest being a 20% hike announced during the second
quarter earnings release. Concurrently, the company also announced
that a $1 billion share repurchase program has been approved by its
board. This new stock buyback plan will be effective after
completion of the company's existing $1 billion share repurchase
program, which is expected by the year end.
We believe that the regular payout boosts and the expanded 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.
Finally, management is paying greater attention to improving
business processes, reducing operating costs, enhancing the
integration of the refining portfolio and investing in organic
growth. Tesoro is involved with 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
Zacks Rank & Stock Pick
With Tesoro shares trading at 52-week high, any upside from here
may be limited, as suggested by the company's Zacks Rank #3 (Hold).
A better-ranked stock in the 'Oil Refining & Marketing' sector
would be EnLink Midstream LLC (
). It carries a Zacks Rank #1 (Strong Buy).
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BP PLC (BP): Free Stock Analysis Report
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