DINO - BofA moves to sideline on refining sector downgrading Valero and four others

2023-08-15 12:35:45 ET

Refiners including Valero Energy ( NYSE: VLO ) and Marathon Petroleum ( NYSE: MPC ) trade lower on Tuesday, -4.1% and -4.2% respectively, as Bank of America said it is taking a "strategic pause" on the sector after the group's strong performance leaves limited room for further upside.

BofA downgraded Valero ( VLO ), Marathon ( MPC ), Phillips 66 ( PSX ), PBF Energy ( PBF ) and HF Sinclair ( DINO ) to Neutral, leaving the bank with no Buy ratings across U.S. refiners for now, seeing "risks that margins are peaking on transitory issues, leaving an unfavorable balance of risk at the same time as seasonal trends pressure margins in coming months."

BofA analysts led by Doug Leggate said they remain confident in an enduring level of higher average earnings during the current "Regional Golden Age" for U.S. refiners, but the risk/reward is no longer compelling.

Within the sector, BofA said it views Valero ( VLO ), Marathon ( MPC ) and Phillips 66 ( PSX ) as defensive plays, with PBF ( PBF ) the most leveraged to ongoing changes underway on U.S. west coast markets, "but for a sector where individual company characteristics are often overwhelmed by seasonal margin swings, we see the risk of a better entry point justifying a more neutral stance across all names for now."

ETF: ( CRAK )

More on Valero Energy:

• Financial and valuation comparison to sector peers
• Analysis: Valero Has Strong Refining Growth Potential
• Stock price return: Up 10.5% YTD, up 18% in the past 12 months

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