In an Oct. 1 note, Raymond James analyst Justin Jenkins reported that Valero Energy Corp.'s (VLO:NYSE) adherence to a disciplined strategy continues to drive strong performance in this challenging oil and gas environment.
Specifically, the manufacturer and marketer of transportation fuels and petrochemical products has been "improving returns in refining while growing in the higher value midstream and renewable segments that also support refining ops," Jenkins pointed out. It also continues to maintain a strong balance sheet and return cash to shareholders.
However, Valero is facing various market headwinds, and as such, Raymond James slightly lowered its Q3/19 expectations for the company, Jenkins indicated.
For one, it reduced its Q3/19 earnings per share estimate to $1.30 from $1.50.
Two, for Valero's Refining segment, Raymond James lowered its Q3/19 gross margin forecast to $9.69 per barrel from $9.79 in light of modest capture difficulty in the Midcontinental and North Atlantic regions.
Three, due to the expectation that higher feedstock costs will negatively impact margins, Raymond James now predicts a Q3/19 operating loss in the Ethanol segment of $28 million, the biggest change to its Valero model. This new figure compares to an $8 million revenue win in Q2/19.
On a positive note, Jenkins concluded that "H2/19 has thus far shaped up better than many had feared, and we continue to expect IMO 2020 to prove to be a solid tailwind for the group, with Valero a particular winner."
Accordingly, Raymond James has left its Q4/19 and 2020 projections on Valero the same. Further, the financial services firm maintained its Outperform rating and $95 per share target price on the energy firm, whose stock is trading now at around $82.66 per share.
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Disclosures from Raymond James, Valero Energy Corp., October 1, 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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