In an April 4 research note, Raymond James analyst Justin Jenkins reported that Valero Energy Corp. (VLO:NYSE) "performed strongly" in Q1/19 despite the difficult operating environment that drove down margins and that "the set-up for refiners should improve through 2019."
Jenkins highlighted that "the company is executing on its plan to improve returns in refining while growing in the higher-value midstream segment that also supports refining ops. . .Also, Valero continues to return substantial cash to shareholders and maintain a strong balance sheet."
The analyst noted that due to weakening macroenvironmental factors throughout Q1/19, Raymond James lowered some of its estimates on Valero for that quarter. For one, it reduced its Q1/19 earnings per share (EPS) forecast to $0.20 from $0.50. "Valero's low-cost operations should keep the company in the black, but a difficult macro clearly will weigh on refining margins," he added.
The financial services firm also dropped its 2019-2020 EPS projections on Valero to $6.50 and $10.75, respectively, from $7 and $11.
It estimated companywide margins of $7.74 a barrel in Q1/19 versus $11 a barrel in Q4/18. Thus, it modeled the refining segment's operating income at $449 million compared to about $1.5 billion in Q4/18.
Looking forward, Jenkins indicated the gasoline market, heavy differentials and IMO 2020 will be the "biggest needle movers."
Raymond James has an Outperform rating and a $100 per share target price on Valero, whose current share price is around $89.32.
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Disclosures from Raymond James, Valero Energy Corp., April 4, 2019
ANALYST INFORMATION
Analyst Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analyst Justin Jenkins, primarily responsible for the preparation of this research report, attest to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and that no part of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.
Raymond James & Associates, Inc. makes a market in the shares of Valero Energy Corporation.
Raymond James & Associates received non-investment banking securities-related compensation from Valero Energy Corporation within the past 12 months.
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