After a shaky start, oil stocks bounced back into positive territory Monday, with investors looking past weaker prices for crude oil as well as valuation downgrades on a couple of refiners.
By mid-morning, the Amex Oil Index ($XOI :1,251.96, +9.37, +0.8% ) was up 0.7%, the Philadelphia Oil Service Index ($OSX :222.21, +2.38, +1.1% ) was ahead 1.4%, and the Amex Natural Gas Index ($XNG :491.57, +5.59, +1.2% ) was up 1.2%.
Crude oil for May delivery traded lately at $63.50 a barrel, down 78 cents. The weakness reflected follow-through selling on the heels of Iran's release last week of 15 British sailors and marines. The New York Mercantile Exchange was closed on Friday. See Futures Movers.
Several downgrades in the oil group were issued before the opening bell, all citing valuation as a key reason.
Standard & Poor's downgraded refiner Tesoro Petroleum Corp. (TSO : 107.60, +1.81, +1.7% ) to sell from hold, pointing to a 67% jump in its share price since January, putting the company on track toward what analyst Tina Vital called overvaluation.
"We are raising our 2007 operating EPS estimate by $1.45 to $10.23, but reducing our 2008 by 72 cents to $8.23. Blending our DCF and relative valuations, we are lifting our target price by $2 to $83, reflecting an expected enterprise value of almost four times our 2007 EBITDA estimate, a discount to peers. Well above that level, we see shares overvalued and are cutting our opinion to sell," Vital said.
Tesoro shares rose 2.1% to $108.02, however.
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