Tuesday, Credit Suisse downgraded Frontier Oil Corp. (FTO) shares to Neutral from Outperform.
The brokerage maintained its Neutral rating on Delek US Holdings Inc. (DK), Holly Corp. (HOC), Sunoco Inc. (SUN), Tesoro Corp. (TSO), Valero Energy Corp. (VLO), and Western Refining Inc. (WNR) stocks.
Analyst Flannery is adjusting earnings estimates for the US Independent Refiners to reflect recently revised refining margin and crude differentials assumptions. As a result, the analyst's average earnings estimates for the US Independent Refiners fall by 24% for second quarter of 2009, and by 27% for fiscal 2009.
The analyst noted that 2009 second quarter earnings for US refiners have been significantly impacted by steep declines in distillate cracks and by dismal crude differentials. VLO recently announced expected 2009 second quarter loss per share of $0.50 vs. consensus profit at $0.73 per share, while WNR stated that it expected second quarter EBIT between $5 million - $25 million, implying a net loss.
The analyst added that most US gasoline cracks have improved from 2009 first quarter as refiners have held down utilization rates. This effort is not a long term solution to weak margins, however: demand will need to recover first and that prospect still seems remote, at least at the commercial and industrial end of the barrel.
The analyst said that US refiners face a difficult second quarter of 2009 and prospects for the remainder of the year are not encouraging. Factors such as a smaller contango benefit, dismal distillate cracks and weaker crude differentials will not be solved easily or quickly.
The analyst noted that better demand remains the key to normalizing earnings in this sector, but as the world adds more complex refining capacity, it grows ever more likely that earnings will normalize at lower levels than in the recent past.
Currently, FTO is down $0.78 or 5.33% and trading at $13.86.
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