Shares of Valero Energy Corporation (VLO) hit a 52-week high of $50.54 during Tuesday’s trading session. However, the stock closed the session at $50.40, which reflects a solid return of 47.2% over the past six months. The average trading volume for the last three months aggregated 6,407,968 shares.
Among all the independent refiners, Valero offers the most diversified refinery base with a capacity of 3.0 million barrels per day in its 16 refineries throughout the U.S., Canada and the Caribbean. More importantly, Valero is best positioned to profit from increased refining margins mainly on account of its strategic refinery structure that enables it to use cheaper oil for over one-half of its needs.
Valero spun off 80% stake from its retail arm – CST Brands Inc. (CST) – through a tax-advantaged distribution to shareholders, to unlock value on May 1, 2013. The spin-off of the company's retail arm generated an immediate net cash benefit of $500 million, after shelling out $220 million in taxes. The remaining 20% was divested by the company on Nov 14, 2013. We feel the move would help the company to concentrate on its industry-specific strategies.
Further in Dec 2013, the company came out with an initial public offering for its logistics master limited partnership (MLP) – Valero Energy Partners LP (VLP). The MLP will not only enable Valero to monetize its existing infrastructure, but would also offer a favorable financing option for future logistics projects.
Valero remains optimistic on the ongoing economic growth projects. These are expected to drive significant improvement in earnings in the future. The company also replaced all imported light sweet crude oil used at its Gulf Coast and Memphis, Tennessee, refineries with cheaper North American crude oil recently.
However, Valero’s earnings decreased 70% in the third quarter of 2013 from the prior-year quarter. Lower refining throughput margins in each of the company’s regions and higher refining operating expenses affected the results. Refiners in the U.S. generally face uncertainty regarding future regulations pertaining to greenhouse gas emissions and the potential for higher requirement of biofuels.
Valero currently carries a short-term Zacks Rank #3 (Hold). Among its peers, a better-ranked stock is Clayton Williams Energy, Inc. (CWEI) with a Zacks Rank #1 (Strong Buy).
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