Valero Energy’s Price Target Raised at UBS
UBS analysts increased their price target for Valero Energy (NYSE:VLO) to $197 from $167, keeping a Buy rating. The analysts noted that Valero's stock has risen 259% since March 2020, outperforming the S&P Energy index and the broader S&P 500.
The analysts anticipate that refining margins will stay significantly above the mid-cycle level into 2024, with new refineries in Mexico and Nigeria expected to have minimal impact on global supply in the first half of 2024. Given the recent increase in Nymex gasoline Crack by 27.26% year-to-date, and the fact that US refineries produce more gasoline relative to diesel, the strengthening of gasoline crack is seen as a major earnings boost for Valero.
Additionally, the closure of the Rodeo refinery and LYB's Houston refinery is likely to tighten gasoline markets and increase the supply of heavy sour barrels in the Gulf Coast, benefiting Valero. Reports of drone strikes on Russian refineries leading to downtime are expected to apply upward pressure on crack spreads. Valero's North Atlantic and Quebec refineries, which can utilize up to 50% Canadian crudes and benefit from lower Syncrude prices, are poised to gain from these market conditions.
| Symbol | Price | %chg |
|---|---|---|
| AKRA.JK | 1095 | 0 |
| RELIANCE.NS | 1204.7 | 0 |
| RELIANCE.BO | 1204.7 | 0 |
| 096775.KS | 71000 | -0.14 |
Valero Energy Corporation Reports Strong Q2 Beat
Valero Energy Corporation (NYSE:VLO) reported its Q2 results, with EPS of $11.36 coming in better than the consensus estimate of $9.14. Revenue was $51.64 billion, compared to the consensus estimate of $40.73 billion.
As expected, the refining segment posted a strong quarter given the elevated crack environment and high utilization of 94% during Q2, which resulted in significant cash generation. Refining margins in the quarter were supported by strong product demand and low inventories. Additionally, US refineries continue to have cost advantages over global competitors given differences in energy costs.
According to the analysts at RBC Capital, the big EPS beat (which is allowing continued balance sheet improvements and a materially higher pace of stock buybacks), coupled with a potentially higher structural mid cycle provide support and upside to the company’s valuation.
The analysts raised their price target to $143 from $141, while maintaining their outperform rating.
Valero Energy Corporation’s Review by RBC Capital
Analysts at RBC Capital provided their views on Valero Energy Corporation (NYSE:VLO), increasing their Q1 estimates, despite the fact that refining cracks continue to surge. The company’s refining margin indicator jumped to the $16/bbl range, up $4/bbl from prior quarter levels and more than double year-ago levels. Notably, March levels are above $20/bbl.
Given flat-price and derivative product volatility, the analysts do expect some pressure on capture in Q1 but increase their Q1 EPS to $1.58 from $0.76.
The analysts believe the company holds the best refining assets in the group, which keeps them constructive amid the current backdrop. Their price target was increased to $108 from $98, while their outperform rating was maintained.
