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Tesoro Stock on the Move in 2Q17: What's Driving It?

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Part 4
Tesoro Stock on the Move in 2Q17: What's Driving It? PART 4 OF 11

Analysts Ratings for Tesoro: Why Most Rate It as a ‘Buy’

Analyst ratings for Tesoro

The analyst rating graph below shows that 17 (or 81%) of the 21 analysts covering Tesoro (TSO) rated it as a “buy” in June 2017. Another four analysts rated TSO as a “hold.” TSO’s mean price target of $106 per share implies an ~16% gain from the current level.

Analysts Ratings for Tesoro: Why Most Rate It as a &#8216;Buy&#8217;

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Improvement in analysts’ ratings for TSO

Compared to June 2016, analysts’ ratings for Tesoro have strengthened. In June 2016, TSO had fewer “buy” ratings and more “hold” ratings.

After the Western Refining acquisition, Tesoro witnessed a rise in its target price from J.P. Morgan. This increase could be due to higher capacity and operational synergies from the acquisition. J.P. Morgan raised TSO’s target price from $95 to $106.

Peers’ ratings

Tesoro’s peers Valero Energy (VLO), Phillips 66 (PSX), and Marathon Petroleum (MPC) received “buy” ratings by 50%, 30%, and 95% of analysts, respectively. 

Among the smaller players, like Delek US Holdings (DK), Alon USA Energy (ALJ), and HollyFrontier (HFC) received “buy” ratings by 40%, 11%, and 22% of analysts, respectively.

Why the “buy” ratings?

Tesoro is riding on its growth path with its organic and inorganic (or acquisitions) strategies. With the modernization and expansion activities in its Refining segment, Tesoro is set to take advantage of an improved refining environment. Also, Tesoro is focusing on strengthening the steady earnings from its Midstream and Marketing segment to buffer itself from the volatility in the refining environment.

The acquisition of Western Refining (WNR) could give Tesoro a significant leap on its growth trajectory. Tesoro expects annual synergies of around $350 million–$425 million from the integration of WNR, operational improvements of $475 million–$575 million in 2017, and an addition to its logistics asset base. These trends provide a solid rationale for the majority of analysts that rated Tesoro as a “buy.”

In the next part, we’ll see what analysts expect from Tesoro’s dividend in the next quarter.

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