Tesoro Corporation (TSO – Analyst Report) delivered record second quarter results on August 5 as profit margins rapidly expanded. This prompted analysts to revise their estimates significantly higher for both 2015 and 2016, sending the stock to a Zacks Rank #1 (Strong Buy).

While shares of Tesoro have soared year-to-date, the valuation picture still looks reasonable with an enterprise value to EBIT ratio below 7.

Tesoro Corporation is an independent oil refiner that operates six refineries in the western United States. Its retail-marketing system includes over 2,265 retail stations under the ARCO®, Shell®, Exxon®, Mobil®, USA Gasoline(TM) and Tesoro® brands.

Second Quarter Results

Tesoro delivered record second quarter earnings on August 5. Adjusted earnings per share came in at $4.62, crushing the Zacks Consensus Estimate of $4.04. It was significantly higher than the $1.70 earned in the same quarter last year.

Operating income more than doubled as profits soared in each segment. The ‘Refining’ segment generated more than twice as much operating income as it did in the second quarter of 2014 due to a “substantially improved margin environment and lower operating expenses”. Total refinery throughput was 783 thousand barrels per day in Q2, or 92% utilization. And the gross refining margin per barrel surged 46% year-over-year to $19.13.

While the average sales price of refined products declined by 28% to $88.87 per barrel, the average cost of sales declined even more at 35%. This led to a 35% increase in the refined product sales margin to $16.73 per barrel.

Tesoro returned over $300 million to shareholders in Q2 through stock buybacks and dividends. The company also announced an 18% in its quarterly dividend to $0.50 per share. That corresponds to a dividend yield of 2.1%.

Estimates Rising

Following strong Q2 results, analysts revised their estimates significantly higher for Tesoro for both 2015 and 2016. This has sent the stock to a Zacks Rank #1 (Strong Buy), placing the stock in the top 5% of all stocks that Zacks ranks based on earnings momentum.