3Q16 Pre-Earnings Release: Valero’s Stock Performance



Valero’s stock performance

Refining stocks like Valero Energy (VLO) have been seeing volatile performances due to unstable refining margins. By contrast, refining stocks were on an upward spiral in 2015.

In 2016, from the end of February to the end of April, refining cracks strengthened, with refining margin indicators of major refining companies showing improvements. Valero’s stock gains had risen to 38% by the end of April 2016, as compared to October 2014. However, from the end of April to the end of June, cracks showed a mixed trend with some areas witnessing weakness and some remaining flat. Valero’s stock gains had fallen to 13% by the end of June, as compared to October 2014.

Since the end of June, refining stocks have risen in anticipation of a better refining margin environment. Valero’s has risen 20% between October 2014 and October 2016.

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In 3Q16, Valero’s stock rose 3%, trending in line with peers. During the same period, Tesoro (TSO), Western Refining (WNR), and HollyFrontier (HFC) rose 3%, 25%, and 1%, respectively. For exposure to refining sector stocks, the iShares US Oil & Gas Exploration & Production ETF (IEO) has ~19% exposure to the sector.

Valero’s stock correlation to crude oil and natural gas prices

Valero’s stock shows a positive correlation to crude oil prices. VLO’s correlation coefficient, as compared to WTI (West Texas Intermediate) for the 12-month period, stands at 0.19. The correlation coefficient shows the relationship between two variables. A correlation coefficient value of 0 to 1 shows a positive correlation, whereas 0 indicates no correlation, and -1 to 0 shows an inverse correlation.

The current value thus shows a feeble correlation and means that on average, the 19% movement in Valero’s stock price can be explained by changes in WTI prices. This weak correlation is also visible in VLO’s stock returns. Since October 2014, Valero’s stock has risen 20%, but crude oil has fallen 39%. The correlation to natural gas is thus negative, coming in at -0.03.

The situation remains the same for VLO’s peer Tesoro (TSO). The correlation of TSO as compared to WTI stands at 0.29. By comparison, downstream peers Western Refining (WNR), Delek US Holdings (DK), Alon USA (ALJ), and Phillips 66 (PSX) show higher correlations of 0.34, 0.36, 0.36, and 0.48 to WTI, respectively.

Now let’s take a look at analyst ratings.


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