Frontier Oil Shares Rally on Upgrade

In a brief but bullish note to clients, analyst Arjun N. Murti said the investment bank was adding Frontier to its Americas Conviction Buy List and the Americas Buy List. Goldman previously rated the stock "Neutral."

"The key short-term catalyst to Frontier shares is an expected seasonal recovery in refining margins over the next 3-6 months," Murti wrote.

Refining margins are the difference between the cost of crude and what oil refiners receive for gasoline and other products they make from it. Those margins have been squeezed for months as the cost of oil has risen.

"Importantly, we remain structurally bullish on the sector as well and believe the combination of seasonal and secular strength can drive Frontier shares meaningfully higher over the next 3-12 months," Murti added.

Through Monday, Houston-based Frontier's stock had fallen nearly 20 percent this year. Given Murti's target price of $52, Frontier shares could jump by more than 60 percent over the next 12 months, the analyst said.

Murti said he remains bullish on the refining sector, and rates as "Buy" nearly all refining-related stocks, including CVR Energy Inc., Valero Energy Corp., Sunoco Inc., Holly Corp., and Marathon Oil Corp.

Separately Tuesday, Valero said it earned $567 million in the fourth quarter, or about half as much during the same period last year, because of tighter refining margins. Its shares nonetheless rose almost 10 percent.

Frontier shares jumped $5.05, or 15.7 percent, to $37.15.