Dahlman Rose Comments On Tesoro Corporation After Reporting In-Line Results

Tesoro Corporation TSO reported 1Q EPS of $0.74, largely in line with Dahlman Rose's $0.76 estimate but beating the $0.66 consensus forecast. Gross refining margin of $14.33/bbl was substantially higher than Dahlman's $12.71 forecast, with the company able to source heavy foreign crudes at more attractive pricing than typical Alaska North Slope (ANS) supply. The stronger margins were offset by higher than expected G&A, most of which was related to stock compensation. Tesoro Logistics completed its IPO and subsequent purchase of approximately 45% of Tesoro's mid-stream assets, bringing nearly $300MM of cash into the parent company, with approximately $1.2Bn of net debt at the end of 1Q. Tesoro has already used part of the proceeds to retire $150MM in junior subordinated notes, and will pursue other debt retirements. Demand destruction fears persist, causing refining stocks to remain volatile. However, while ANS remains at up to a $12/bbl premium to WTI, global demand for diesel has sustained the export trade out of both the Gulf and West coasts. Dahlman Rose reiterates its Buy rating and $34 target, targeting 5x 2011 EV/EBITDA. TSO closed Wednesday at $24.89