Our Underperform recommendation on Tesoro (TSO) shares takes into account the bearish refining margin outlook. A growing supply overhang in the face of a recession-induced fall in global oil product demand
has led to a squeeze in refiners profits.
Tesoro’s lack of geographic diversification and heavy exposure to the weak California market has also become a major liability, in our view. Weighed down by these factors, the company posted a second-quarter 2009 loss.
Overall, we see a fairly unfavorable macro backdrop for independent refiners like Tesoro. We believe this will cause Tesoro shares to underperform relative to the market as well as the sector in the coming quarters.Zacks Investment Research
