Refiners have had a tough month as both Tesoro (TSO) and Valero (VLO) have had significant pull backs over that time span. However, I think Valero has had some positive news recently, is deeply undervalued and seems poised to bounce back in short order.
Key Recent Events
- Announced a $605m charge for its Aruba refinery, which should put that overhanging albatross behind it.
- Interim guidance either the other day (which included refinery charge announcement) was above consensus.
- Its Memphis facility is now back on line.
- Citicorp just added the stock to its top picks and successful hedge fund manager Ray Dalio has it as one of his top 10 positions as well.
- Driving season is almost here.
Valero Energy - "Valero Energy Corporation operates as an independent petroleum refining and marketing company. The company operates through three segments: Refining, Ethanol, and Retail". (Business Description from Yahoo Finance)
4 additional reasons Valero is a solid bargain at just under $24 a share:
- It is below its consensus price target. The 12 analysts that cover the stock have a median price target of $30.50 on Valero.
- It is dirt cheap at just over 5 times forward earnings and 79% of book value.
- Consensus estimates for FY2012 and FY2013 have increased smartly even as stock has fell.
- The stock sells for less than 4 times cash flow, is expected to have revenue growth of approximately 8% for both FY2012 and FY2013 and also pays a dividend of 2.5%.
Disclosure: I am long VLO.