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Valero Energy: Second-Best Performer in the Top 7 Refining Stocks

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Feb. 5 2018, Updated 11:40 a.m. ET

Valero Energy’s stock performance

Valero Energy (VLO) stock provided the second-highest returns among the seven stocks being compared in this series. The stock with the highest returns is Marathon Petroleum (MPC), which is discussed in Part 1.

Valero Energy stock has risen 3.9% since January 2, 2018, and underperformed the broad market indicator—the SPDR Dow Jones Industrial Average ETF Trust (DIA). DIA has risen 6.5% in the same period. Marathon Petroleum gained 4.4%, while HollyFrontier (HFC) stock lost 8.7% in January.

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Moving averages

In January, Valero Energy’s ten-day moving average was above its 30-day moving average. The rise in Valero Energy stock led to a rise in its ten-day moving average. However, Valero Energy’s 30-day moving average has risen steeply compared to its ten-day moving average. As a result, the gap narrowed between both of the moving averages. Valero Energy’s ten-day moving average, which stood 4.9% above its 30-day moving average on January 2, 2018, stands 4.1% above its 30-day moving average. Valero Energy’s ten-day moving average stands above its 30-day moving average, which suggests short-term technical bullishness.

Why did Valero Energy stock rise?

Valero Energy is expected to publish its 4Q17 results on February 1, 2018. Wall Street analysts estimate that Valero Energy could post an EPS (earnings per share) of $1.1 in 4Q17—40% higher than its 4Q16 adjusted EPS and 41% lower than its adjusted EPS in 3Q17. However, Valero Energy’s revenues are estimated to be ~$21.7 billion in 4Q17, which is ~5% higher than its 4Q16 revenues.

WTI prices, a barometer of the general energy environment, have risen 9.6% since January 2. Usually, refined product prices move in line with crude oil prices. If the rise in refined product prices is steeper than crude oil prices, it could expand cracks for refiners. In 4Q17, refining crack indicators in three of the four areas where Valero Energy’s refineries operate rose year-over-year. Valero Energy might witness wider refining margins in its 4Q17 results.

The US corporate tax rate was cut to 21% in December 2017, which will likely bring in higher net earnings and cash flows for Valero Energy. Higher earnings and cash flows will likely be reflected in Valero Energy’s upcoming 4Q17 earnings.

In the next part, we’ll examine Phillips 66’s stock returns before its 4Q17 earnings.

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