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Valero: Buy On Cheap Valuations, Solid Fundamentals, And Gross Margin Growth
- Valero has benefited from a decline in oil prices.
- The company's gross margins have grown around 25% quarter over quarter.
- It offers a stellar dividend yield and high OCF yield, which shows further room for dividend growth.
- There is currently an excellent opportunity for long-term investment in VLO's stock at a very cheap price.
- Valero will continue to benefit from lower crude feedstock costs and from cheap natural gas as an energy source.
- Valero has compelling valuation metrics and strong earnings growth prospects; its PEG ratio is extremely low at 0.41, and its EV/EBITDA ratio is also extremely low at 3.64.
- Valero is generating substantial free cash flows; its TTM price/free cash flow ratio is very low at 7.18, and it's accelerating cash returns to shareholders through buybacks and dividends.
Valero: The Refiner To Weather The Oil Price Storm
- Investors are looking for good stocks to weather the oil price storm and Valero is a good pick for this purpose.
- When compared to its competitors, Valero competes well with comparable fundamental metrics and is significantly undervalued when compared to its peers.
- Tesoro, Marathon, and Phillips 66 all represent good investments but Valero is a better play for those looking for a value buy.
- Valero Energy showed higher-than-expected earnings in the third quarter.
- Higher volumes contributed to the company’s gain in revenue.
- Lower margins on sour and sweet oils could weigh in on the company’s profit margin.
- Valero is trading at the low end of the market and even its own historical valuations.
- It has steadily improved the operational effectiveness and has a high return on investment.
- It has very strong free cash flow, balance sheet, and dividend yield over 2%.
Valero Energy: 20% Annual Dividend Growth Remains Very Possible
- Valero can continue to maintain annual dividend growth at around 20% owing to its healthy cash flow growth prospect and currently low payout level.
- Current share valuation implies a dividend growth rate at just 10%.
- Even with very conservative assumptions, my base case demonstrates that the annual dividend growth can still land at around 13% over the next few years.
- VLO reported stronger than expected results.
- VLO offers the most diversified refining base out of all other independent U.S. refiners.
- The company is one of the biggest beneficiaries of discount in coastal crudes among the U.S. independent refiners.
- The entire energy sector has continued to be under extreme pressure due to falling oil prices.
- One part of the sector bucking that trend is the refinery space which is reporting better-than-expected results and showing improving margins on feedstock price decreases.
- The largest refinery stock in the country, Valero is due to report this Tuesday. I expect this cheap refinery play to beat the consensus and move higher as a result.
- A shift in the product mix might allow the company to manage short-term seasonality.
- Demand for natural gas is expected to remain higher than crude oil during the winters, which might bring some element of seasonality to Valero revenues.
- Ethanol segment is growing at an exceptional rate for the company and it might become a substantial portion of the total revenues.
- A change in policies regarding the use of ethanol might result in lower demand and increased supply, which will bring down the prices and margins.
Valero Energy: A Great Long-Term Investment Opportunity
- Valero is an excellent combination of compelling value and strong growth dividend stock.
- Valero has shown significant earnings per share surprise in each one of the last four quarters, and according to its historical valuation multiples, the stock is undervalued.
- Valero is generating strong free cash flows, and it is accelerating cash returns to shareholders through buybacks and increasing dividends.
Valero Energy Corporation: Invest In Booming North American Oil Production
- Valero Energy Corporation is benefiting from the increase in North American cost-advantage oil production compared to imported fuel. Sustained growth in North American oil will benefit refiners.
- Valero has invested $3 billion in infrastructure out of which 51% was spent on strategic growth projects.
- Valero’s share price increased by 47% in one year. It rewards its shareholders with increasing dividends.
Is Valero A Long-Term Investment Opportunity?
- Valero posted strong results in the second quarter due to higher throughput volumes in the refinery segment and better margins in the ethanol segment.
- Valero has begun implementing strategies to supply incremental volumes of cost-advantaged crude oil.
- However, its margins would be adversely affected in the coming quarters, as the price difference of sour and sweet crude oils to Brent crude oil is narrowing.
- The company intends to have one of the highest cash returns among its peers by growing regular dividends at a sustainable rate, returning excess cash through stock buybacks.
How Does Valero Stack Up Against Its Competition Marathon And Tesoro?
- The energy sector has had a history of market outperformance.
- Many energy stock plays pay dividends in addition to capital appreciation opportunities.
- Valero, Marathon Petroleum and Tesoro are all stocks worth considering.
- The growing demand of liquids in the U.S will support the growth for Valero over the next few quarters.
- Ethanol business has been able to report strong growth numbers due to a decrease in corn prices and favorable ethanol prices.
- EIA sees further growth in liquids demand and HGL, which will allow the refiners to continue growth over the next few quarters.
Valero Energy - Implications Of Narrowing Price Gap Between WTI And Brent
- The analyst firm Oppenheimer reiterated an outperform rating for Valero but lowered its price target from $70 per share to $65 per share.
- With the Department of Commerce’s recent step allowing two companies to export crude condensate, the refining industry expects to report lower earnings.
- The shrinking gap between WTI and Brent crude oil will also play a part in lowering the expected margins.
- Owing to the company’s lucrative position in the U.S Gulf Coast the company is well positioned to benefit from the growing production growth in the U.S.
- Valero will continue to benefit from increased oil production in the United States and Canada.
- Valero is incredibly diversified, and has set itself up for success in the changing landscape of refining.
- By spinning off many of the volatile portions of its business and becoming more contract based, Valero has drastically reduced risk and improved its continued profitability.
Sat, Dec. 20, 10:20 AM
- With crude oil prices near five-year lows, some analysts say gas stations may be the best way to play the energy sector right now, with CST Brands (NYSE:CST), Murphy USA (NYSE:MUSA) and Marathon Petroleum (NYSE:MPC) as pure plays worth watching.
- Gasoline retailers enjoy their largest profit margins in falling price environments such as today, says Again Capital's John Kilduff.
- The gas station trend is clearly seen with refinery Valero's (NYSE:VLO) 2013 spinoff of its retail CST Brands, which operates 1,900 gas stations in North America and whose stock has easily outperformed VLO in recent months; Gabelli last week increased its 2014 EPS estimate on CST because of lower oil prices.
- MUSA and MPC, also created as gas station spinoffs from refineries, have outperformed their parent companies as well.
- Tesoro (NYSE:TSO) said its retail segment enjoyed record performance in the most recent quarter, while big box stores such as Costco (NASDAQ:COST) that have gas stations connected to their stores also noted the benefit of lower oil prices in their earnings reports.
Thu, Dec. 18, 12:54 PM
- Phillips 66 (PSX -0.2%) is upgraded to Buy from Hold while fellow refiner Valero Energy (VLO -2.2%) is downgraded to Hold from Buy at Deutsche Bank.
- On PSX, the firm notes that fears of margin pressure on the CPChem and DCP segments are somewhat warranted given the oil price backdrop, but still thinks shares are pricing in a fairly draconian scenario as investors overstate PSX’s exposure; on its sum-of-the-parts analysis, the firm thinks investors are getting the refiner segment essentially for free.
- Deutsche Bank cites valuation and its more cautious view on the sector in its VLO downgrade, as concerns around persistent weakness in Gulf coast refining margins coupled with currently narrow WTI-Brent differentials keep it on the sidelines for now.
Mon, Dec. 15, 12:33 PM
- BofA Merrill analyst Doug Leggate stays cautious on the refining sector for 2015, although he sees a bullish opportunity in Phillips 66 (PSX +0.5%), which he upgrades to Buy from Neutral with a $90 price target.
- The expected recognition of value risks being materially overhyped compared to what is currently being recognized by MLPs, the analyst says, adding that absence of guidance on the cost impact on the remaining business, limited guidance on tax and lack of precision on disclosure prompts skepticism that the market is not getting ahead of itself.
- Leggate downgrades HollyFrontier (HFC -1.5%) to Neutral from Buy, and PBF Energy (PBF -1.9%) and Delek US (DK -1.9%) to Underperform from Neutral; he also lowers stock price targets for the three, as well as for Valero (VLO +0.4%), Northern Tier (NTI -2.5%) and Marathon Petroleum (MPC -1.1%).
Wed, Dec. 3, 3:15 PM
- U.S. oil refiners are processing record amounts of crude for this time of year, FT reports, taking advantage of falling oil prices and a flood of supply from shale drillers.
- Refiners’ appetite has kept the price of high-quality light U.S. crude closely in line with international prices, defying warnings that a glut would force deep discounts: “The bottom line remains that we haven’t seen an oversupply of light crude,” Marathon Petroleum (MPC +1.5%) says.
- Whether U.S. refineries succeed in absorbing the rising oil tide is up for speculation, but the refiners' own investment plans suggest they have the capacity to handle rising volumes; Valero (VLO +1.4%), for example, plans to add crude units in Houston and Corpus Christi designed to process oil from the nearby Eagle Ford shale.
- Refiners are by far the dominant customers for crude, so the amount purchased by U.S. refiners will be an important guide for world oil markets.
- Also: TSO +0.1%, ALJ +0.5%, PSX +1.6%, WNR +1.2%, HFC +0.4%, CVI +0.8%, PBF +1.8%.
Tue, Dec. 2, 5:58 PM
- U.S. ethanol production is likely to continue at a record rate despite its rare premium to gasoline, as cheap corn, high biofuel prices and even cool weather provide ideal conditions and strong profit margins.
- "The mentality is that everyone is running," says Todd Becker, CEO of Green Plains (NASDAQ:GPRE), the no. 4 U.S. ethanol producer behind Archer Daniels Midland (NYSE:ADM), POET LLC and Valero Energy (NYSE:VLO).
- Export demand for ethanol is booming, up more than 40% YTD, helping to make ethanol more expensive than gasoline in some domestic markets; meanwhile, costs to make ethanol have declined in the wake of a record U.S. harvest of corn, of which about a third is used for ethanol.
- However, ethanol futures are trading at a $0.30 premium to gasoline futures, the second largest in the last five years; if the disparity persists, ethanol demand from fuel blenders could slip.
Tue, Dec. 2, 2:48 PM
- Energy stocks (XLE +1.4%) are posting the day's largest gains among S&P sectors, rebounding from recent losses even as Nymex crude oil fell another $2.05 to $66.97/bbl.
- Refiners Marathon Petroleum (MPC +4%) and Valero (VLO +4.1%) and pipeline operator Williams Cos. (WMB +1.5%) are among the top gainers, while losers include most oil services companies such as Halliburton (HAL -2.2%) and rig operator Transocean (RIG -3.7%).
- Anadarko Petroleum (APC +1.6%), Cimarex Energy (XEC +1%), Devon Energy (DVN +0.7%), EOG Resources (EOG +3.8%) and Marathon Oil (MRO +3.5%) were selected top “safe haven” picks for analysts at Tudor Pickering Holt, which said they are “liquid names with high-quality assets and healthy balance sheets."
Fri, Nov. 21, 6:45 PM
- Ethanol and other biofuel groups are declaring victory, as the EPA today said a decision to finalize blending requirements for 2014 - first proposed more than a year ago - has been delayed.
- The delay gives hope to ethanol producers that the EPA will rethink how it proposes the annual biofuels levels; the draft 2014 biofuels levels were much lower than the ethanol industry wanted.
- Oil company lobbyists opposed to the law say the idea of setting a retroactive quota shows the EPA is incapable of managing the program; the American Fuel & Petrochemical Manufacturers, which represents energy companies, plans to sue the EPA for failing to issue the 2014 requirements.
- Ethanol stocks: ADM, GPRE, GEVO, MEOH, SZYM, REX, CDTI, REGI, FF, AMRS, ANDE
- Related refining stocks: VLO, HFC, MPC, TSO, WNR, ALJ, PSX, PBF, DK, NTI, ALDW
- Related coal stocks: BTU, WLT, CNX, ACI, ANR, YZC, ARLP, AHGP, NRP, PVG, PVA, OXF, CLD, WLB, SCOK
- Related solar stocks: JASO, SPWR, TSL, FSLR, CSIQ, YGE, EMKR, SOL, JKS, CSUN, SCTY, RGSE, SUNE, HSOL, DQ, ASTI, OTCQB:SOPW
- ETFs: XLE, ERX, VDE, OIH, ERY, DIG, DUG, IYE, FENY, PXJ, RYE, FXN, DDG, FUE, KOL, TAN
Fri, Nov. 21, 10:28 AM
- The EPA will abandon its proposed rule setting renewable fuel targets for 2014, with an announcement to come today, according to a Bloomberg report.
- Ethanol stocks: PEIX, GPRE, GEVO, MEOH, SZYM, REX, CDTI, REGI, FF, AMRS, ANDE, FUE
- Related refining stocks: VLO, HFC, MPC, TSO, WNR, ALJ, PSX, PBF, DK, NTI, ALDW
- Related coal stocks: BTU, WLT, CNX, ACI, ANR, YZC, ARLP, AHGP, NRP, PVR, PVG, PVA, OXF, CLD, WLB, SCOK, KOL
- Related solar stocks: JASO, SPWR, TSL, FSLR, CSIQ, YGE, EMKR, SOL, JKS, CSUN, SCTY, RGSE, SUNE, HSOL, DQ, OTCPK:DSTI, ASTI, OTCQB:SPIR, OTCQB:SOPW
- ETFs: XLE, ERX, VDE, OIH, ERY, DIG, DUG, IYE, FENY, PXJ, RYE, FXN, DDG, FUE, KOL, TAN
Wed, Nov. 12, 12:19 PM
- Refiners have outperformed while most energy peers have struggled lately, and the Cowen energy analyst team is keeping a positive view on the refining sector due to solid underlying earnings potential and the developing theme of logistics growth.
- Cowen likes Tesoro (NYSE:TSO) for the possibility for meaningful EBITDA growth driven by the Carson refinery acquired earlier this year and eventually through TSO’s Port of Vancouver crude logistics project, and sees Valero (NYSE:VLO) as well positioned to benefit from the ongoing infrastructure debottlenecking of inland crude oil supply in 2014 and beyond.
- The firm also sees 30%-40% stock price upside for Outperform-rated Delek US Holdings (NYSE:DK), Marathon Petroleum (NYSE:MPC), Western Refining (NYSE:WNR) and PBF Energy (NYSE:PBF).
Fri, Nov. 7, 2:58 AM
- Despite a confirmation from both Venezuela's president and finance minister this past month saying that Citgo will not sell its U.S. refining unit, potential buyers have recently visited its refinery in Illinois and have shown interest in its Texas unit, Reuters reports.
- It is unclear if Citgo's owner, Venezuelan national oil company PDVSA, will go ahead with a sale, but Lazard, the investment bank hired by Citgo to carry out the sale, is still marketing the refinery.
- Potential bidders include, Reliance Industries (OTC:RLNIY), PBF Energy (NYSE:PBF), Tesoro (NYSE:TSO), Marathon Petroleum (NYSE:MPC), Valero Energy (NYSE:VLO) Phillips 66 (NYSE:PSX), Koch Industries and Chevron (NYSE:CVX).
Tue, Nov. 4, 9:09 AM
- Valero Energy (NYSE:VLO) +1.3% premarket after Q3 earnings and revenues beat Wall Street expectations, as VLO's refining segment reported higher volumes and operating income.
- Q3 refining throughput volumes averaged 2.8M bbl/day, an increase of 42K bbl/day from the year-ago quarter, due primarily to less turnaround activity and higher throughput capacity utilization.
- Refining operating income rose to $1.66B from $600M in the same quarter a year ago.
- The ethanol segment's operating income increased to $198M from $113M, boosted by higher margins related to lower corn costs and increased volumes.
- Expects 2014 capex, including turnarounds and catalyst, to be about $2.9B. More than 50% of the planned growth investments will be used to strengthen and expand the company's logistics system.
- Q3 results
Tue, Nov. 4, 7:42 AM
Mon, Oct. 27, 9:44 AM
- Venezuela is canceling plans to sell its Citgo U.S. refining unit, the country’s finance minister says, apparently the victim of falling oil prices, declining refining margins, and unscheduled downtime among Citgo's refineries.
- Venezuelan officials indicated earlier this year that they were looking to sell Citgo for as much as $10B, and HollyFrontier (NYSE:HFC), Valero Energy (NYSE:VLO), Western Refining (NYSE:WNR), Tesoro (NYSE:TSO) and PBF Energy (NYSE:PBF) were speculated as potential bidders for Citgo's three U.S. refineries.
- Analysts at the risk consultancy Eurasia Group recently warned that a sale of Citgo would leave fewer assets for investors to target if Venezuela defaults.
Thu, Oct. 23, 8:47 AM
Tue, Oct. 14, 6:57 PM
- Refiners implore Pres. Obama to remain firm on plans to scale back renewable fuel quotas for 2014, warning that if the administration gives in to Corn Belt demands for higher mandates, it could cause gasoline prices to spike.
- The EPA last year proposed cutting the amount of renewable fuel required for 2014 to 15.2B gallons, ~3B gallons below the amount prescribed in federal statutes, including up to 13B gallons from traditional corn-based ethanol and 2.2B gallons of advanced biofuels.
- But administration officials have hinted they could boost the final targets, justified in part because gasoline consumption has also risen since the proposal was first unveiled last year.
- Among signers of a letter to Obama were Valero (NYSE:VLO) CEO Joseph Gorder and Tesoro (NYSE:TSO) CEO Gregory Goff.
Thu, Oct. 9, 2:57 PM
- J.P. Morgan has a favorable outlook on the refining sector heading into Q3 earnings, as the group has sold off since September on a combination of factors, including fears about the crude export ban being lifted and narrowing crude differentials, despite good product cracks.
- Two of the biggest drops among refiners have been suffered by Valero Energy (VLO -2.7%) and HollyFrontier (HFC -2.6%), each ~13% since the group's peak; of the two, JPM likes VLO going into the quarter, particularly in the event of any favorable updates around capital allocation.
- The firm thinks Tesoro (TSO -3.2%) is set up for another solid quarter but that investors must be expecting it, given that shares are down only ~3%.
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