Oil Refiners Seen as Biggest Energy Winners From U.S. Tax Reform

(Bloomberg) -- Andeavor rose the most in half a year after a report from analysts at Piper Jaffray & Co. that called the oil refining companies the “clear winners” from U.S. tax reform.

The San Antonio-based refiner rose 3.8 percent to $108.35 at 1:22 p.m. in New York, after earlier climbing as much as 4.2 percent for the biggest intraday climb since June 5.

Unlike oil explorers and equipment providers that have struggled to generate positive cash flow, refiners have enjoyed fat margins from producing fuels from crude. That's put refiners in a much better position to benefit from a plunge in the corporate tax burden, Guy Baber, an analyst at Piper's Simmons unit, said in a telephone interview on Monday.

“The refiners are unique in that they have generated positive pre-tax income,” Baber said. “If you're losing money, it doesn't really matter what the tax rate is.”

Just before 2 a.m. Washington D.C. time on Saturday, the Senate voted 51-49 to approve a 479-page bill that would cut the corporate tax rate from 35 percent in 2019, and provide temporary tax cuts for individuals that would expire in 2026.

The tax cut would boost Andeavor's earnings per share by 20 percent to $11.23 for next year compared to previous estimates, according to Baber's calculations.

An index of refining stocks on the S&P 500 rose 1.4 percent, reaching the highest since at least 1996. Phillips 66, the largest refiner based on market value, would see a 16 percent hike to next year's estimates, compared to its current view, Baber said.

“However, positive tax reform is already at least somewhat discounted in current valuation, in our view,” he said.

To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Joe Carroll, Stephen Cunningham

©2017 Bloomberg L.P.