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Are Analysts Turning Positive on Valero?


May. 23 2018, Updated 10:30 a.m. ET

Analysts’ ratings for Valero

The chart below shows that 11 (or 52.0%) of the 21 analysts covering Valero Energy (VLO) rated it a “buy.” The remaining ten analysts rated Valero as a “hold.” There are no “sell” ratings for VLO.

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Valero’s rating upgrades and target price raises

Recently, Morgan Stanley upgraded Valero from “equal weight” to “overweight.” The company also raised its target price on VLO from $110.00 per share to $140.00 per share.

Bank of America Merrill Lynch raised its target price on Valero from $110.00 per share to $128.00 per share. Raymond James, which has an “outperform” rating on the stock, raised its target price on Valero from $112.00 per share to $121.00 per share. 

Cowen and Company, which has an “outperform” rating on VLO, raised its target price on VLO from $100.00 per share to $125.00 per share. Credit Suisse increased its target price on Valero from $102.00 per share to $118.00 per share.

Valero’s mean target price of $121.00 per share implies no profit or loss from the current level.

Among Valero’s peers, Marathon Petroleum (MPC), Phillips 66 (PSX), and Andeavor (ANDV) have been rated as a “buy” by 82.0%, 37.0%, and 41.0% of analysts, respectively. Delek US Holdings (DK), PBF Energy (PBF), and HollyFrontier (HFC) have been rated as a “buy” by 93.0%, 18.0%, and 32.0% of analysts, respectively.

Why are Wall Street analysts turning positive on Valero?

Valero has consistently borne RINs (renewable identification numbers) expenses, which is presumably the reason for the stock’s “hold” ratings. However, VLO expects its RINs cost to stand between $500.0 million and $600.0 million in 2018. This is lower than the guidance of $750.0 million–$850.0 million previously provided by the company. 

VLO lowered its RINs cost guidance for 2018 due to weakening RINs prices—a favorable sign. If RINs prices continue to fall, this could result in greater cost savings for the company going forward.

Plus, crude oil prices have been rising. With a rise in crude oil prices, refined products prices typically rise. If the rise in refined products prices is more than oil prices, then cracks should expand, leading to higher refining margins for refiners. 

The latest available data for VLO’s cracks and spreads have been showing a positive trend for the current quarter. So, improving refining margins could enhance earnings for VLO in the second quarter.

Valero is also steadily progressing on its growth path with a focus on diversifying and enhancing earnings. Plus, VLO’s projects show that it is set to achieve its targeted earnings growth.

Overall, Valero’s growth activities with its expanding Logistics segment, improving refining cracks and oil spread environment, lower debt, and the current downtrend in RINs prices could be the reasons for analysts to have a positive outlook on Valero.


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