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SAN ANTONIO -- Merrill Lynch today downgraded independent refiner Tesoro Petroleum Corp. to sell, from neutral. Analyst Andrew Fairbanks says the downgrade is based on valuation, weakening West Coast refining fundamentals, and in his view, overly optimistic consensus earnings per share estimates, Business Week reported.
Tesoro operates six refineries in the United States with a combined capacity of nearly 560,000 and manages a retail marketing network that includes more than 600 stores under the 2Go and Mirastar brands.
Fairbanks said he believes the oil company's stock is trading at excessive levels relative to peers considering its history of losses, overpaying for major refinery acquisitions and weak free cash generation. He notes while his 2003 and 2004 refiner earnings per share estimates are generally above consensus given his positive outlook on refining fundamentals, in Tesoro's case he's significantly below consensus for the second quarter, and in 2003 and 2004.