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Merrill Cuts Tesoro Petroleum to 'Sell'


Merrill Lynch downgraded Tesoro Petroleum (TSO) to sell, from neutral.

Analyst Andrew Fairbanks says the downgrade is based on valuation, weakening West Coast refining fundamentals, and in his view, overly optimistic consensus earnings per share estimates.

Given Tesoro's history of large losses, overpaying for major refinery acquisitions (again, in his view), and weak free cash generation, he thinks the stock is trading at excessive levels relative to peers. He notes while his 2003 and 2004 refiner earnings per share estimates are generally above consensus given his positive outlook on refining fundamentals, in Tesoro's case he's significantly below consensus for the second quarter, and in 2003 and 2004.


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