We’re past the point of our peak gasoline consumption, so independent refiners are in trouble. While the price of refiners’ stocks has fallen in the past two years, some are still overpriced, says Kopin Tan in the Wall Street Journal:
If demand doesn’t rebound, shutting idle refineries and writing down their value could cause another hit to balance sheets. Many refiners managed to raise capital earlier this year, “but if the low-margin environment persists, they may need to tap the capital markets again,” Ms. Kohler says. She has underperform ratings on refiners including Tesoro (TSO), Sunoco (SUN), Valero (VLO), Frontier Oil, Holly and Western Refining.
Stock prices might not yet fully reflect much of this grim reality. The oil-refining sector trades at more than 45 times projected 2009 profits, and less than 10 times 2010 estimated profits. That’s because some analysts have slashed earnings forecasts for this year but expect a robust rebound by 2010.
Such a rebound rests on the dubious assumption that demand will pick up strongly.
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