Tesoro Corporation Valuation – February 2017 $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 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  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 (Tesoro) is an independent petroleum refining and marketing company. The Company operates through three business segments: Refining operating segment (Refining), which owns and operates refineries, and refines crude oil and other feedstocks into transportation fuels; 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 terminaling, and transportation and storage assets, and marketing segment (Marketing), which sells transportation fuels. The Company’s Refining segment owns and operates approximately six petroleum refineries with a combined crude oil capacity of over 850 thousand barrels per day (Mbpd). TLLP’s business operates in three segments: Gathering, Processing, and Terminalling and Transportation. The Marketing segment sells transportation fuels in approximately 20 states through a network of approximately 2,270 retail stations.

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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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, 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 – February 2017

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 $9,721,849,220 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.90 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 379.60% Pass
6. Moderate PEmg Ratio PEmg < 20 11.67 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.81 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 1.90 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.93 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

EPSmg $7.14
MG Growth Estimate 15.00%
MG Value $274.92
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $103.54
MG Value based on 0% Growth $60.70
Market Implied Growth Rate 1.59%
Current Price $83.35
% of Intrinsic Value 30.32%

Tesoro Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.72 in 2012 to an estimated $7.14 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.59% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Tesoro Corporation revealed the company was trading above its Graham Number of $75.72. The company pays a dividend of $2.05 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.67, which was below the industry average of 69.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-62.03.

Tesoro Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$62.03
Graham Number $75.72
PEmg 11.67
Current Ratio 1.90
PB Ratio 1.81
Current Dividend $2.05
Dividend Yield 2.46%
Number of Consecutive Years of Dividend Growth 5


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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $5,105,000,000
Total Current Liabilities $2,693,000,000
Long-Term Debt $4,667,000,000
Total Assets $18,005,000,000
Intangible Assets $1,287,000,000
Total Liabilities $12,505,000,000
Shares Outstanding (Diluted Average) 119,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.42
Dec2015 $12.36
Dec2014 $6.44
Dec2013 $3.00
Dec2012 $5.25
Dec2011 $3.81
Dec2010 -$0.21
Dec2009 -$1.01
Dec2008 $2.00
Dec2007 $4.06
Dec2006 $5.73
Dec2005 $3.60
Dec2004 $2.38
Dec2003 $0.58
Dec2002 -$0.97
Dec2001 $1.05
Dec2000 $0.88
Dec1999 $0.96
Dec1998 -$0.43
Dec1997 $0.57
Dec1996 $1.41

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.14
Dec2015 $7.39
Dec2014 $4.49
Dec2013 $3.07
Dec2012 $2.72
Dec2011 $1.55
Dec2010 $0.98
Dec2009 $2.01
Dec2008 $3.53
Dec2007 $3.96
Dec2006 $3.36
Dec2005 $1.89
Dec2004 $0.95
Dec2003 $0.33
Dec2002 $0.23
Dec2001 $0.76
Dec2000 $0.63

Recommended Reading:

Other ModernGraham posts about the company

Tesoro Corporation Analysis – October 2015 Update $TSO
14 Companies in the Spotlight This Week – 10/18/14
Tesoro Corporation Annual Stock Valuation – 2014 $TSO

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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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