Petroleum refining company Tesoro (TSO) has been added to Goldman Sachs' 'Conviction Buy" list, an assortment of stocks presumed to be the firm's top picks.
Goldman initiated coverage of the San Antonio-based firm's stock with a "Conviction Buy" rating and a $121 price target saying that it remains undervalued, will benefit from its Western Refining acquisition and can generate solid cash flow.
Shares of Tesoro were climbing over 2.3% during mid-morning trading on Tuesday.
"In our 6-month $121 price target, we estimate that $55 of value comes from retail/ marketing and $48 comes from TLLP/logistics. Marketing provides a source of constant cash flow and logistics generates IDRs that we value at $11 per share," Goldman wrote.
The firm noted that Tesoro's deal for Western Refining could drive earnings improvement from "better Permian crude access, higher product pricing and $100-125 mn in cost reductions."
Goldman contended that Tesoro is also a capital allocation "winner."
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