Positive signal about refining stocks! Crack spread strengthens and production resonates. Morgan Stanley upgrades HF Sinclair (DINO.US) performance expectations.

Wall Street financial giant Morgan Stanley recently released an upward revision report on HF Sinclair Corp (DINO.US) third-quarter performance forecast for 2025. The core point of the institution is that with the strengthening of cracking price differentials (+5% Q/Q) and throughput improvement post maintenance in the refining sector, performance is expected to significantly improve below the benchmark; despite slight weakness in capture rates, overall profits are still better than market consensus expectations. Therefore, Morgan Stanley maintains an "Overweight" rating on HF Sinclair stock with a target price still set at $60 per share. Morgan Stanley's latest forecast model for HF Sinclair's performance outlook shows an expected EPS of $1.92 for 3Q25 (compared to a market consensus of $1.80), with EBITDA at the company level of $722 million (compared to a consensus of approximately $693 million, higher than Morgan Stanley's previous estimate of approximately $675 million). For various business segments, Morgan Stanley is optimistic in its latest forecast. Firstly, in the refining sector, the institution expects a roughly +5% increase in benchmark cracking price differentials, planned throughput recovery post maintenance; company total throughput is estimated to be 675 kbpd (close to the consensus of 677 kbpd); Morgan Stanley expects a weakening of capture rates in the Mid-Con region, due to weak jet/diesel cracking differentials and tight WCS differentials; it is expected that regional price differentials in the West region (WCS, ANS, Syncrude) will generally stabilize. Thus, Morgan Stanley's EBITDA expectation for the company's refining business segment is approximately $531 million, higher than the market consensus of $505 million and higher than the approximately $476 million in the second quarter; the latest forecast model shows refining gross profit of approximately $16.68 per barrel (vs. market consensus of $16.06 per barrel), with a capture rate expectation of around 59% (compared to 67% in 2Q). In the Lubricants & Specialties business segment, Morgan Stanley expects sales to rebound after the Mississauga planned maintenance and a significant improvement in the market environment; the EBITDA forecast for this business in the third quarter is approximately $79 million, close to the consensus of $81 million, significantly higher than the approximately $55 million in the second quarter. For the Renewables business segment, the institution expects benchmark profit indicators to decrease slightly (from $0.01 per gallon to $0.06 per gallon range), throughput of approximately 600k gpd, with profitability remaining roughly stable on a Q/Q basis; therefore, the EBITDA loss for this business is expected to be $11 million (market consensus is -$9 million; 2Q was -$2 million). In the Midstream business segment, Morgan Stanley states that the final business results are expected to remain relatively flat Q/Q, with an EBITDA estimate of approximately $113 million in the third quarter (consistent with the company's annualized rate of about $450 million; market consensus is approximately $115 million). In the Marketing business segment, Morgan Stanley assumes that seasonal sales and gross profits will remain robust, with an EBITDA estimate of approximately $24 million in the third quarter (market consensus of $26 million). For the full year and medium-term outlook of HF Sinclair, Morgan Stanley's latest expectations are as follows: Adjusted EBITDA expectation for the full year of 2025 is $1.975 billion (up 2% from Morgan Stanley's previous estimate); 2026E is approximately $2.116 billion, and 2027E is approximately $1.963 billion, expectations remain largely unchanged. Full-year operating EPS expectation for 2025 is $3.82 (previously estimated at approximately $3.62, +6%); 2026E is around $4.52, and 2027E is approximately $4.04, expectations remain largely unchanged. Full-year free cash flow expectation for 2025 is $941 million (previously estimated at $904 million, +4%). Morgan Stanley expects continued improvement in the company's net debt and capital structure, with a dividend yield range of approximately 3.8% to 5.7% (subject to annual changes). Amidst the continued slump in international oil prices, HF Sinclair's stock price has unexpectedly surged. HF Sinclair is an independent energy company with refining as its core business, spanning lubricants/specialty products, renewable fuels, marketing, and midstream operations in the US market. Despite the prolonged low oil prices due to oversupply expectations in the international Brent crude market this year, the main logic behind the strong performance of the company's stock price is the improvement in the refining business' cracking spreads/profits in the second and third quarters, which have exceeded expectations, while diversifying operations and share buybacks have enhanced shareholder returns. HF Sinclair's current stock price hovers around $50.59, with a year-to-date gain of 50%, significantly outperforming the S&P 500 index. HF Sinclair is an independent energy company/independent refiner operating in the US market, providing traditional and renewable fuels, lubricants and specialty products, and engaging in marketing and midstream transportation businesses. The company's owned and branded network covers North America, with approximately 678,000 barrels per day refining capacity and lubricant production capacity, as well as operating growing renewable fuel assets. For large refiners like HF Sinclair, profits are earned through cracking spreads, not the price of crude oil itself. Refining profits are more closely related to cracking spreads - the difference between the sale price of finished products (gasoline/diesel, etc.) and the cost of crude oil; a widening crack spread means significantly improved gross profits for refineries like HF Sinclair, even if oil prices weaken, profits can still increase significantly, which is the core logic behind HF Sinclair's sharp increase in stock price this year. Starting in the second quarter of 2025, global and US refining gross profits/crack spreads have rebounded (for example, in May, global composite refining gross profits reached a new high not seen since March 2024; in the third quarter, US gasoline crack spreads doubled compared to the same period last year, and finished oil inventory depletion was better than usual), leading to performance and valuation improvements for large refinery stocks.