The Analysts on Valero: Why the Fall in ‘Buy’ Ratings?
Analyst ratings for Valero
The analyst rating chart below shows that 11 (50%) of the 22 analysts covering Valero Energy (VLO) have rated the stock a “buy.” Another 11 analysts have rated the stock as a “hold.” VLO’s mean price target of $74 per share implies a ~13% gain from its current level.
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Compared to June 2016, VLO’s overall ratings have weakened as “buy” ratings have declined and “hold” ratings have increased. After its latest earnings release, Goldman Sachs downgraded Valero to “neutral” from “buy,” and Morgan Stanley lowered Valero’s rating to “equal weight.” However, JPMorgan raised VLO’s target price to $71 from $69.
But why the fall in “buy” ratings?
Valero has sound financials with low leverage and healthy cash flows. It also actively and steadily pays dividends and repurchases shares. But half of the analysts have rated Valero as a “hold,” likely due to its high and uncertain RIN (renewable identification number) purchase burden, which sharply impacts Valero’s earnings. (For more on RINs, you can refer to Market Realist’s article “If Only the RFS Program Rumors Were True.”)
By comparison, Marathon Petroleum (MPC) has 90% of Wall Street analysts covering the stock giving it a “buy” rating. Phillips 66 (PSX) and Tesoro (TSO) have been rated as “buy” by 21% and 67% of analysts, respectively, while Western Refining (WNR), Delek US Holdings (DK), and Alon USA Energy (ALJ) have been given a “buy” by 17%, 29%, and 13% of analysts, respectively.
Continue to the next part for a look at Valero’s dividend yield.