Valero Energy Corporation (VLO) announced that its subsidiary Valero Energy Partners LP filed a document with regulators for an initial public offering of its common units to raise around $345 million. However, the number of shares in the offering and their price has not yet been disclosed. Valero Energy Partners LP intends to list its common units on the New York Stock Exchange under the symbol "VLP".
Valero Energy Partners LP was formed to operate pipelines and terminals for the transportation of crude oil and refined petroleum products. Assets in the partnership would include crude and refined-products pipelines and terminals in three systems, which serve Valero's Port Arthur refinery, its McKee plant in the Panhandle and its Memphis refinery.
Valero is moving ahead with the formation of the master limited partnership (MLP) owing to significant financial benefits. An MLP can raise money from the bourses but is taxed only at the unit holder level. These are exempted from paying corporate income taxes.
Valero is the largest independent refiner and marketer of petroleum products in the U.S. It has a refining capacity of 3 million barrels per day across 16 refineries located throughout the U.S., Canada and the Caribbean.
Valero spun off 80% stake of its retail arm – CST Brands Inc. (CST) – through a tax-advantaged distribution to shareholders, to unlock value in May 2013. The spin-off generated an immediate net cash benefit of $500 million, after shelling out $220 million in taxes. We feel the move would help the company to concentrate on its industry-specific strategies.
We remain upbeat on Valero for the remainder of 2013 and foresee attractive opportunities that will position it uniquely among refiners to grow earnings and cash flow per share going forward. Additionally, Valero’s string of growth projects and operational improvement will drive free cash flow generation in 2013. However, second quarter earnings and revenues fell on an annual basis, due mainly to lower refining margins in each of the company’s regions and higher refining operating expenses.
Valero holds a Zacks Rank #3, which is equivalent to a short-term Hold rating. Other energy sector stocks that are expected to significantly outperform the equity markets in the next one to three months are Zacks Rank #1 (Strong Buy) SM Energy Company (SM) and China Petroleum & Chemical Corp. (SNP).