Why Has Short Interest in Valero Risen ahead of Q3 Earnings?
Short interest in Valero
Valero Energy (VLO) has seen a rise in its short interest (as a percentage of outstanding shares) from 3.9% at the end of August to the current level of 4.3%. This change implies that bearish sentiment in the stock has risen. Over the same period, Valero stock rose 12.9%.
Interested in DK? Don't miss the next report.
Receive e-mail alerts for new research on DK
What affected Valero since the end of August?
The most significant event that affected refining stocks since the end of August was Hurricane Harvey. It also affected Valero’s five US Gulf Coast refineries. However, due to the rise in refining cracks, as reflected in VLO’s crack indicators, VLO’s stock has risen sharply since then. We discussed these dynamics in Part 3 of this series.
We also saw why analysts have remained skeptical about Valero despite its strong fundamental and operational positions in the previous part of this series.
So, after the recent run-up in the stock, more market participants likely see limited upside in the stock, given the negative factors we mentioned above. In fact, Valero’s refining volumes have also been affected by Hurricane Harvey in the quarter. This impact could explain the rise in short interest in VLO stock.
However, at the same time, note that the surge in short interest isn’t steep—likely because Valero is expected to report higher year-over-year earnings in 3Q17 on the back of higher refining margins, as its regional crack indicator trends suggest. We discussed this outlook in Part 1 of this series.
Peers’ short interest
Valero’s peers Delek US Holdings (DK), HollyFrontier (HFC), and PBF Energy (PBF) have also witnessed rises in their short interest since the end of August. Short interest in DK, HFC, and PBF rose 1.4%, 0.7%, and 1.1%, respectively, in the period. Currently, short interest in DK, HFC, and PBF stands at 6.7%, 7.5%, and 22.5%, respectively.
Since the end of August, HFC and PBF stocks rose 10.7% and 10.6%, respectively. DK rose marginally by 3.7% in the same period. So, in a trend similar to the one we’ve seen in VLO, stocks of refining companies have surged while bearish expectations surrounding the stocks have increased only marginally, given the backdrop of improved profitability that we explained above.