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Valero Energy Falls on 2Q14 Interim Update

Zacks Equity Research

U.S. refining company Valero Energy Corporation’s (VLO) share price fell 3.4% during trading after market close. The depreciation followed the company’s announcement that though it expected to post higher second-quarter 2014 income than a year ago, the profit would be lower than street expectations mainly due to seasonal weakness in its biggest Gulf Coast market.

For the second quarter of 2014, Valero Energy has estimated income from continuing operations of $1.10 to $1.25 per share, while the Zacks Consensus Estimate is $1.40.

Aided by higher throughput volumes as well as wider discounts on sour crude oil and certain types of North American light crude oil, the company’s refining segment operating income is expected to be higher in the second quarter of 2014 compared with the year-ago quarter. The refining segment’s operating income will be partially offset by weaker year-over-year gasoline and distillate margins in most regions.

Moreover, the ethanol segment’s operating income is anticipated to be higher in the second quarter of 2014 from the prior-year quarter mainly due to increased gross margins.

The company is also projected to post a loss of $63 million or 12 cents per share from discontinued operations owing to a non-cash charge related to its Aruba refinery.

Among all the independent refiners, Valero Energy offers the most diversified refinery base with a capacity of 3.0 million barrels per day in its 16 refineries located throughout the U.S., Canada and the Caribbean. More importantly, Valero Energy is also well poised to profit from increased refining margins mainly due to its strategic refinery structure that enables it to use cheaper oil for over one-half of its needs.

Currently, Valero Energy carries a Zacks Rank #3 (Hold). Meanwhile, one could consider better-ranked players in the same sector like EXCO Resources, Inc. (XCO), BPZ Resources, Inc. (BPZ) and Statoil ASA (STO). All these stocks sport a Zacks Rank #1 (Strong Buy).

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