TSO: Tesoro Petroleum Corp. Message Board

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Gold/Mining/Energy : TSO: Tesoro Petroleum Corp.

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To: Dennis Roth who wrote (7)	12/6/2007 8:42:30 AM
From: Dennis Roth	Read Replies (1) of 14

Tesoro Corp. (TSO): Remains Neutral rated following analyst meeting - Goldman Sachs - 12/05/07 What's changed Tesoro hosted an analyst meeting on December 5 at which it shifted its strategy to more meaningfully emphasize organic growth opportunities. Implications Notwithstanding the meeting’s growth focus, the outlook for West Coast refining is likely to remain the key driver of Tesoro’s shares for the time being. There is no change to our view that refining margins will recover strongly in 1H 2007 from current seasonally weak levels to the benefit of the broad refining sector. Tesoro shares appear inexpensive at 5.0X 2008E EV/DACF versus the sector average of 5.6X, but we do not have a differentially favorable view of West Coast margins to justify favoring Tesoro over current Buy-rated Sunoco (also on Conviction Buy List) or Valero. While we see the potential for Tesoro’s capital projects to generate favorable returns in a continued bullish refining margin environment, we believe a strategy that more proactively balanced cash returned to shareholders with growth would be preferable. We think Tesoro shares are unlikely to be re-rated higher until it demonstrates favorable project execution. We note that Frontier Oil and Holly (both Neutral) we think have traded at premium valuations in part due to the market’s willingness to give credit for future growth projects. However, both Frontier and Holly have long-term track records of generating top quartile returns on capital and executing well on projects. Tesoro has performed well in recent years, but we are doubtful investors will be as willing to give advance credit for its growth projects, until the company can show it has delivered. Valuation There is no change to our $60, 12-month target price, which is based on asset value, P/E and cash flow valuation analyses. Key risks Key risk is sustained lower commodity prices.

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