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Valero's 3Q17 Earnings: Can You Expect an Outstanding Show?

PART:
1 2 3 4 5 6 7
Part 6
Valero's 3Q17 Earnings: Can You Expect an Outstanding Show? PART 6 OF 7

Have Analyst Ratings for Valero Weakened ahead of Q3 Earnings?

Analyst ratings for Valero

In this pre-earnings series, we’ve looked at Valero Energy’s (VLO) estimate for its 3Q17 earnings, refining margin outlook, stock price performance, moving average indicator, and price forecast up to October 26.  Now we’ll review analysts’ ratings on the stock.

Have Analyst Ratings for Valero Weakened ahead of Q3 Earnings?

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Valero Energy has been covered by a total of 21 analysts. Of the total, ten analysts (48%) have assigned a “buy” or “strong buy” rating, 11 (or 52%) have assigned “hold” ratings, and none has assigned “sell” or “strong sell” ratings on the stock.

If we compare with the previous month, September 2017, we find that the ratings in October 2017 have weakened with the rise in “hold” ratings and a fall in “buy” ratings. Recently, J.P. Morgan downgraded Valero from “overweight” to “neutral.” But the firm has raised its target price for Valero from $75 per share to $78 per share. VLO’s mean target price of $77 per share implies a 0.5% loss from the current level.

But why the weakening ratings?

Notably, Valero has witnessed a rise in its “hold” ratings, which could be because Valero saw a substantial increase in its stock price compared to peers since July 3, as we discussed in Part 3 of this series.

Valero has a stable leverage position and a good cash flow situation, and it has steadily contributed to shareholder returns via dividends and buybacks. However, Valero faces high, uncertain quarterly RINs (renewable identification numbers) purchase expenses.

So, perhaps due to higher valuations and continuous RINs costs, many analysts have rated VLO a “hold.”

Peer ratings

Valero’s (VLO) peers Delek US Holdings (DK), HollyFrontier (HFC), and Phillips 66 (PSX) have been rated as a “buy” by 33%, 29%, and 42% of analysts, respectively. Other downstream players PBF Energy (PBF) and Andeavor (ANDV) have been rated as a “buy” by 29% and 82% of analysts, respectively.

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