Evercore initiates coverage on U.S. refiners, sees upside on Phillips 66

Evercore ISI initiated coverage on U.S. refining companies, assigning an Outperform rating to Phillips 66 (PSX) with a price target of $130, citing potential benefits from operational streamlining and midstream expansion following acquisitions. Marathon Petroleum (MPC) and Valero Energy (VLO) received neutral ratings due to valuation and limited near-term upside, despite strong cash flow and efficient operations, respectively; price targets were set at $170 for MPC and $135 for VLO.

Analysis

Evercore ISI has initiated coverage on U.S. refining companies, highlighting Phillips 66 (PSX) with an Outperform rating and a $130 price target, compared to its $124 Wednesday trading price. This positive outlook for PSX is attributed to its multi-year operational streamlining efforts and strategic expansion of its midstream business, including recent acquisitions of DCP Midstream and EPIC. Evercore anticipates that improved performance in refining and chemicals, alongside progress on cost control and asset sales, could help PSX close its valuation gap relative to its peers. In contrast, Marathon Petroleum (MPC) received an In Line rating with a $170 price target, consistent with its current price. While Evercore acknowledges MPC's strong cash flow, exposure to midstream assets via MPLX (MPLX), and significant shareholder returns, the firm notes that the stock has already outperformed peers this year, potentially limiting further upside without new catalysts. Valero Energy (VLO) was also assigned an In Line rating with a $135 price target, which is below its Thursday trading price of $139. Valero is recognized as a cost-efficient operator with favorable U.S. Gulf Coast positioning and steady export market access, likely to generate stable returns; however, Evercore suggests recent gains and current consensus expectations limit near-term upside. The brokerage's generally cautious stance is influenced by the significant run-up in refining stocks this year, while specifically identifying Phillips 66 as a potential beneficiary from operational and portfolio changes in the future.

Key Decisions for Investors

• Investors might consider Phillips 66 (PSX) favorably, given its Outperform rating, defined catalysts including operational improvements and midstream expansion, and a price target suggesting potential upside.
• For Marathon Petroleum (MPC), despite strong fundamentals and shareholder returns, the In Line rating and recent outperformance suggest a hold strategy might be appropriate, pending new catalysts for further appreciation.
• Investors in Valero Energy (VLO) should exercise caution, as the In Line rating and price target below its current trading level indicate limited near-term upside, potentially warranting a re-evaluation of positions after recent gains.
• Given the broader run-up in refining stocks, a selective investment approach is warranted, focusing on companies with distinct operational catalysts, as highlighted by Evercore's differentiated view on Phillips 66 versus its peers.