Tesoro Corporation Analysis – October 2015 Update $TSO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Tesoro Corporation (TSO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Tesoro Corporation is an independent petroleum refining and marketing company. Through its subsidiaries, the Company primarily transports crude oil and manufactures, transports and sells transportation fuels. The Company operates through three business segments: Refining operating segment, which owns and perates six petroleum refineries with a combined crude oil capacity of 850 thousand barrels per day (Mbpd) located in the western United States and sells transportation fuels to a variety of customers; TLLP, a publicly traded limited partnership, which includes certain crude oil and natural gas gathering assets, natural gas processing and crude oil and refined products terminalling, transportation and storage assets, and Retail operating segment, which sells transportation fuels in approximately 16 states through a network of approximately 2,267 retail stations under the ARCO, Shell, Exxon, Mobil, USA Gasoline and Tesoro brands.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of TSO

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $12,427,843,123 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.44 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 60.90% Pass
6. Moderate PEmg Ratio PEmg < 20 15.66 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.64 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.44 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.55 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

TSO value chart October 2015

EPSmg $6.45
MG Growth Estimate 15.00%
MG Value $248.25
Opinion Undervalued
MG Value based on 3% Growth $93.50
MG Value based on 0% Growth $54.81
Market Implied Growth Rate 3.58%
Current Price $100.96
% of Intrinsic Value 40.67%

Tesoro Corporation does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, inconsistent dividend history, and the insufficient earnings stability over the last ten years.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.55 in 2011 to an estimated $6.45 for 2015.  This level of demonstrated earnings growth is better than the market’s implied estimate of 3.58% annual earnings loss over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Tesoro Corporation (TSO)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

TSO charts October 2015

Net Current Asset Value (NCAV) -$55.08
Graham Number $91.80
PEmg 15.66
Current Ratio 1.44
PB Ratio 2.64
Dividend Yield 1.44%
Number of Consecutive Years of Dividend Growth 4



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Most Recent Balance Sheet Figures

Total Current Assets $4,898,000,000
Total Current Liabilities $3,404,000,000
Long-Term Debt $3,808,000,000
Total Assets $16,691,000,000
Intangible Assets $1,200,000,000
Total Liabilities $11,854,000,000
Shares Outstanding (Diluted Average) 126,300,000

Earnings Per Share History

Next Fiscal Year Estimate $9.53
Dec14 $6.44
Dec13 $3.00
Dec12 $5.25
Dec11 $3.81
Dec10 -$0.21
Dec09 -$1.01
Dec08 $2.00
Dec07 $4.06
Dec06 $5.73
Dec05 $3.60
Dec04 $2.38
Dec03 $0.58
Dec02 -$0.97
Dec01 $1.05
Dec00 $0.88
Dec99 $0.96
Dec98 -$0.43
Dec97 $0.57
Dec96 $1.41
Dec95 $1.09

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.45
Dec14 $4.49
Dec13 $3.07
Dec12 $2.72
Dec11 $1.55
Dec10 $0.98
Dec09 $2.01
Dec08 $3.53
Dec07 $3.96
Dec06 $3.36
Dec05 $1.89
Dec04 $0.95
Dec03 $0.33
Dec02 $0.23
Dec01 $0.76
Dec00 $0.63
Dec99 $0.58

Recommended Reading:

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.






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