After the stock prices all doubled during the year, there is limited room for further growth! Mizuho downgraded refiners such as Phillips 66 (PSX.US) to “neutral”

The Zhitong Finance App learned that Mizuho Securities downgraded its ratings of the three refiners Phillips 66 (PSX.US), Delek US (DK.US), and Par Pacific (PARR.US) from “outperforming the market” to “neutral,” with target prices set at $300, $83, and $91, respectively. The Bank of Switzerland believes that after all three stocks have more than doubled their year-to-date gains, there is limited room for further growth.

Mizuho analyst Nitin Kumar said in a report that Phillips 66's refining business has achieved industry-leading operating performance, as evidenced by increased capacity utilization, increased ability to obtain benefits from cracking price differences, and cost reductions. However, he pointed out, “Despite this, we believe that the current stock price already reflects most of the performance improvements and short-term profit growth brought about by the widening of the cracking spread.”

Delek US has achieved significant results in implementing its strategic goals, including enterprise optimization plans, which have led to measurable operational improvements. However, Nitin Kumar said that after the sharp rise in the stock price from the beginning of the year to date, there is limited room for further upward movement of the stock. Furthermore, as a key catalyst, the small-scale refinery exemption policy, “the relevant exemption for 2025 has been approved, and according to current stock price levels, this factor is no longer as significant as a driving force for valuation.”

At the same time, stronger distillate oil cracking price differences are beneficial to Par Pacific's product yield structure. Distillate oil production accounts for about 39% of the company's total product yield, so its business has a high exposure to distillate oil production. However, Nitin Kumar said that the stock's current share price fully reflects the expected profit growth.

Nitin Kumar said that overall, the trend of refining stocks has always been driven by high cracking spreads. The ongoing conflict in the Middle East and the Russia-Ukraine conflict limited the supply of refined oil products and delayed the return of refining profit margins to the central level of the cycle. These factors highlight the advantages of US refiners in terms of structural costs, but there seems to be limited room for further increases in related stocks.

Against the backdrop of the closure of refineries in the US over the years and the tightening of global fuel supply due to the Middle East war, US refiners are fully operating to meet market demand, making the second quarter one of the most profitable quarters in history. For example, Phillips 66's second-quarter profit increased by more than 300% year over year to reach $3.8 billion; financial reports released by Valero Energy (VLO.US) showed that in terms of earnings per share, the company achieved the strongest quarterly performance in history in the second quarter.

And as fuel prices continue to rise, the “good days” for refiners seem to continue. Shell (SHEL.US) said it is expected that the oil trading business will deliver strong results in the third quarter as tighter global fuel supply drives refining profit margins to record highs.