Western Refining Neutral At Goldman Sachs; Phoenix Exposure Offsets Low Crude Differentials

Western Refining, Inc. WNR offered to purchase Northern Tier Energy LP NTI in October 2015, and the companies are still in the process of finalizing the merger.

Goldman's Take

Goldman Sachs' Neil Mehta reinstated Western Refining at Neutral with a 6-month price target of $22.00 after Western Refining and Northern Tier Energy agreed on to merge.

In addition to Northern Tier Energy, the change in estimates were a result of "higher share count and interest expense levels, lower share buybacks and dividend growth, and updated capture rate assumptions," stated Mehta.

Crude Differentials Headwind

Mehta believes crude differentials to be low in the future, creating a headwind for Western Refining Inc. "We see downside risk to our 2017 Brent-WTI forecast of $2/bbl, reinforcing our negative view on the Mid-Con refining complex," said the analyst.

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Phoenix Market Strength

The crude differential weakness will be offset by the Phoenix market, Mehta claimed. The Phoenix market has premium product pricing compared to the rest of the United States given "regional demand growth, infrastructure constraints and recent supply disruptions," which will benefit Western refining, according to the Goldman analyst.

According to TipRanks.com, Mehta is among the better analyst covering Western Refining, having a success rate of 60 percent with an average rate of return per recommendation of +6.8 percent. The analyst is ranked 704 out of 4,055 analysts.

At time of writing, Northern Tier Energy traded at $21.21, flat Thursday morning, while Western Refining was down 1.73 percent at $20.40.