Valero Energy Corp. (VLO, Financial) got two opposite ratings Jan. 5.
Bank of America Merrill Lynch upgraded Valero Energy from Neutral to Buy while Deutsche Bank downgraded the energy stock from Buy to Hold.
Source: Yahoo Finance
Deutsche Bank says that Valero Energy “remains a fundamentally strong operator with sustainably strong capture rates,” but its shares are fully valued at current levels and are “trading at 7.1x forward EBITDA,” which already represents an historical premium; therefore it “would more than fully price in a full repeal of RINs expenses and corporate tax reform, two major tailwinds for the refinery sector in 2017,” as reported by StreetInsider.com
Deutsche Bank set a price target of $65 per share, which represents a 2.5% downside from the last closing price of $66.66 per share.
After the two new ratings, the analysts’ average target price is $71.06 per share, a 9.3% upside from the current price per share, which ranges between a low target price of $61 per share and a high target price per share of $86.
Source: Yahoo Finance
Analysts recommend buying shares of Valero Energy with a rating of 2.0. The recommendation rating is between 1.0 (Strong Buy) and 5.0 (Sell).
Analysts believe Valero Energy will benefit from a series of factors in 2017, RINs relief and corporate tax reductions among the most important. RINs relief will have a positive impact on the company’s financials since this class of biofuel obligations has considerably squeezed the operating income of the company. However, the company expects “such costs to be between $750 million and $850 million for 2016.” (Third Quarter 2016 Report)
Analysts forecast a 41.6% growth in EPS from 2016 to 2017. The analysts estimate that the energy company will generate EPS $5.31 on average in 2017, which ranges between a low estimate of $4.55 and a high estimate of $6.33.
Source: Yahoo Finance
The energy company closed the third quarter of 2016 reporting EPS of $1.24, a substantial improvement from the first quarter of 2016 when the company reported EPS of 60 cents, but it represents a 30.71% decline from the fourth quarter of the previous year. Over the last four quarters, revenue increased by 4.6%.
In the third quarter of 2016, EPS decreased $1.55 or 55.6% on a year-over-year basis. This was due to a steep decline in the refining segment’s operating income because of “weaker gasoline and distillate margins” and other factors such as “narrower discounts for most sweet and sour crude oils and higher costs” related to Valero Energy’s purchase obligation of RINs, the company says in its Third Quarter 2016 Report.
In third-quarter 2016, the company sustained $104 million more in biofuel blending costs when compared to the same quarter of the prior year. The company added $198 million on its income statement as biofuel blending costs during the third quarter of 2016.
In fiscal year 2015, Valero Energy generated revenue and earnings of $87.8 billion, a 36.4% decrease from 2013, and $3.99 billion, a 46.7% increase from 2013.
Valero Energy closed at $66.66 per share on Jan. 6, down $1.02 (or 1.51%) from the previous close with 3,771,723 traded on the New York Stock Exchange versus an average volume of 4.91 million shares traded on the stock market over the last 10 trading days and an average volume of 5.27 million shares traded over the last three months. The daily share price ranged between a low price per share of $66.63 and a high price of $67.88 per share.
The 52-week range is between $46.88 and $72.06 per share; the energy stock lost 5% since the beginning of the new year. Valero Energy is less volatile than the stock market and the beta is 0.82.
The 12 trailing months P/E ratio and EPS are 10.71 and $6.22.
The company distributes a total dividend of $2.40 per share every year through quarterly payments of 60 cents per share, and the dividend yield is 3.60% according to the current price. The payout ratio is currently 47.82%.
Valero Energy Corporation has a market capitalization of $30.17 billion and it is trading at 1.50 times the book value. The Enterprise value is $33.18 billion and the EV/EBITDA ratio is 5.93 at the moment.
The U.S. global producer and vendor of transportation fuels, petrochemical products and power, headquartered in San Antonio, had $5.95 billion in cash on hand and $ 8.95 billion in total debt, as of the most recent quarter.
Over the 12 trailing months’ time frame approximately $4.31 billion has been generated from Valero Energy’s operations.
The company has approximately 452.67 million shares outstanding, of which 99.7% can be traded on the stock market. The percentages of Valero Energy’s shares outstanding, which are held by insiders and institutions, is 0.44% and 84.20%.
During the third quarter of 2016, Joel Greenblatt (Trades, Portfolio) and Ron Baron (Trades, Portfolio) increased the number of Valero Energy Corporation’s shares in their portfolio by 752.13% and 17.01% while David Dreman (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) decreased their positions by 1.91% and 14.81%.
Disclosure: I have no positions in Valero Energy.
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