BofA/Merrill Lynch Upgrades Phillips 66 (PSX) to Buy; Downgrades (DK) (PBF) (HFC)

BofA/Merrill Lynch analyst Doug Leggate is staying cautious on Refining in 2015 although the analyst sees a number of bullish and bearish opportunities in the sector and made rating changes accordingly. Price targets for the entire group were taken lower.

• Phillips 66 (NYSE: PSX) upgraded from Neutral to Buy with a price target of $90 (from $95).
• Delek US Holdings (NYSE: DK) downgraded from Neutral to Underperform with a price target of $24 (from $34).
• PBF Energy, Inc. (NYSE: PBF) downgraded from Neutral to Underperform with a price target of $26 (from $32)
• HollyFrontier (NYSE: HFC) downgraded from Buy to Neutral with a price target of $42 (from $60)

Commenting on the sector, Leggate said: "Since our sector downgrade in Apr-14, valuation and performance of the US refiners has been torn between increased seasonal volatility and a deteriorating average annual earnings outlook offset by renewed focus on the potential value of the midstream opportunity. This latter point is increasingly dominant as a perceived driver of value. However, our examination of this issue leads us to conclude the expected recognition of value risks being materially overhyped versus what is currently being recognized by publicly traded MLP’s. Moreover absence of guidance on the cost impact on the remaining business, limited guidance on tax and lack of precision on disclosure leave us highly skeptical that the market is not getting ahead of itself."

Elsewhere in the sector, the firm cut price targets on:

• Marathon Petroleum (NYSE: MPC) (Neutral) to $90 (from $100)
• Northern Tier Energy LP (NYSE: NTI) (Neutral) to $25 (from $29)
• Valero Energy (NYSE: VLO) (Neutral) to $52 (from $64).

For an analyst ratings summary and ratings history on Phillips 66 click here. For more ratings news on Phillips 66 click here.

Shares of Phillips 66 closed at $65.68 yesterday.

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