How is Tesoro’s performance?
In a previous series, we discussed why Tesoro Corporation (TSO) is trading near-record highs while crude oil has hit five-year lows. In this series, we’ll take a deeper look into Tesoro’s financial statements to find out if the foundations of this outperformance are strong.
Kicking off our analysis, we’ll first see how Tesoro’s balance sheet has evolved over the last seven years or so.
Tesoro Corporation’s (TSO) assets increased ~65% between 2007 and 2013, driven by a massive $1.2-billion build in its cash reserves, a doubling of its current assets, and a ~46% bump in its long-term assets.
Tesoro’s fixed assets such as property, plant, and equipment saw the largest growth in Tesoro Logistics LP (TLLP) and corporate segments. Growing fixed assets reflects Tesoro’s increasing investments in its businesses and particularly Tesoro Logistics’ growing importance in the company.
Other current assets, mainly inventories and accounts receivables, also seem to have grown strongly. This could indicate weak working capital management. We’ll analyze working capital in the next part.
Tesoro’s cash reserves, which are already up 25% in the first three quarters of 2014, deserve special mention. They give the company the firepower it will need for future capital expenditures, for boosting shareholder returns, and for weathering hard times.
For context, two of America’s largest independent refiners, Valero Energy (VLO) and Marathon Petroleum (MPC), sport cash balances of ~$4.2 billion and ~$1.85 billion, respectively, at the end of 3Q14, compared to Tesoro’s ~$1.5 billion. These companies are among the top ten holdings of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which is a great way to gain diversified exposure to the refining sector.
Tesoro’s current liabilities, which are mainly accounts payable, seem to have grown at a slower pace, again indicating weak working capital management.
Tesoro’s debt has grown ~$1.2 billion to ~$2.8 billion in the seven years to 2013. That’s not bad considering its cash position.
The company’s other long-term liabilities have grown mainly as a consequence of its rising deferred income taxes, an accounting item that’s created due to differing methods of depreciation used for reporting and tax purposes.
As Tesoro Corporation’s (TSO) liabilities have grown more slowly at ~55% between 2007 and 2013, its equity value has also expanded during these years. Indeed, Tesoro’s equity has almost doubled to just less than $6 billion at the end of 3Q14.