A Value Opportunity: Refining Stocks Go for the Glory (VLO, MPC, PSX, TSO, WNR, HFC)

It’s been a good year for refining stocks. Six large independent refiners are posting 12-month gains of between about 40% and 140%. All six — Valero Energy Corp. (NYSE: VLO), Marathon Petroleum Corp. (NYSE: MPC), Phillips 66 (NYSE: PSX), Tesoro Corp. (NYSE: TSO), Western Refining Inc. (NYSE: WNR), and HollyFrontier Corp. (NYSE: HFC) — posted those 52-week highs in the last two to three weeks.

Here’s a quick look at these stocks, with an eye toward whether or not the next 12 months will be as kind to investors as the past 12 have been. About three months ago, these stocks had implied gains of between 25% and 45%. Those gaps have been only partially closed.

Valero Energy Co. (NYSE: VLO) traded at $31.90 and has a market value of about $17.6 billion. The consensus target price from Thomson Reuters is $38.53 and the 52-week range is $17.77 to $34.66. Valero has a dividend yield of 2.2%. The implied upside to the consensus target is 21%, and the target price is well above the 52-week high.

Marathon Petroleum Corp. (NYSE: MPC) traded at $54.80 and has a market value of about $18.5 billion. The consensus target price from Thomson Reuters is $62.36 and the 52-week range is $28.53 to $56.22. Marathon has a dividend yield of 2.5%. The implied upside to the consensus target is 14%, and again the target price is above the 52-week high.

Phillips 66 (NYSE: PSX) traded at $45.20 and has a market value of about $28.3 billion. The consensus target price from Thomson Reuters is $50.64 and the post-IPO range is $28.75 to $48.22. Phillips 66 has a dividend yield of 1.7%. The implied upside to the consensus target is 12%, and the target price is above the 52-week high.

Tesoro Corp. (NYSE: TSO) traded at $42.59 and has a market value of about $6 billion. The consensus target price from Thomson Reuters is $52.47 and the 52-week range is $18.90 to $43.78. Tesoro has a dividend yield of 1.1%. The implied upside to the consensus target is 23%, and again the target price is above the 52-week high.

Western Refining Inc. (NYSE: WNR) traded at $26.40 and has a market value of about $2.4 billion. The consensus target price from Thomson Reuters is $31.51 and the 52-week range is $11.17 to $28.04. Western’s dividend yield is 1.2%. The implied upside to the consensus target is 7% and again the target price is above the 52-week high.

HollyFrontier Corp. (NYSE: HFC) traded at $39.90 and has a market cap of $8 billion. The consensus target price from Thomson Reuters is $46.06 and the 52-week range is $21.13-$42.33. HollyFrontier has a dividend yield of 1.4%. The implied upside to the consensus target is 15% and the target price is above the 52-week high.

Based on implied gain, Tesoro (23% upside) and Valero (21% upside) clearly outpace the field here. Tesoro’s ability to source crude from cheaper WTI sources has boosted its performance. Valero, with large refining operations along the Gulf Coast, has benefited from the reversal of the Seaway Pipeline, carrying crude toward the Gulf Coast rather than away from it. For a combination of upside and dividend yield, Valero gets the nod, but Tesoro could continue to forge higher as crude prices weaken.

Paul Ausick