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What's in the Cards for Valero Energy (VLO) in Q1 Earnings?

Zacks Equity Research
Significant recovery in oil price through the March quarter of 2019 may hurt Valero Energy's (VLO) refining business.

Valero Energy Corporation VLO is set to report first-quarter 2019 results on Apr 25, before the opening bell.

The leading independent refining player surpassed the Zacks Consensus Estimate in the last four quarters, the average beat being almost 31%. Let’s see how things are shaping up prior to the announcement.

Which Way Are Estimates Headed?

Let’s take a look at the estimate revision trend to get a clear picture of what analysts feel about the upcoming earnings release.

The Zacks Consensus Estimate for first-quarter earnings of 20 cents has seen no upward revision and nine downward movements in the past 30 days. The figure suggests a year-over-year decline of 80%.

Further, the Zacks Consensus Estimate for revenues is pegged at $23.6 billion for the quarter, indicating a decline of 10.8%.

Factors to Consider

Valero Energy’s refining businesses are affected by the significant tick-up in oil price through the March quarter of 2019. Notably, the global refining marker margin, as reported by BP plc BP, for first-quarter 2019 fell sequentially to $10.2 per barrel from $11 a barrel. The refining marker margins both in the U.S. North West Coast and U.S. Mid-West declined sequentially, per BP.

This downturn is reflected in the Zacks Consensus Estimate for the company’s refining segment which is pegged at $690 million, calling for a substantial decline from $1,481 million in the December quarter of 2018 and $922 million in the March quarter of 2018.

Valero Energy’s ethanol segment is expected to improve quarter over quarter, but might underperform compared to the year-ago quarter. The Zacks Consensus Estimate for operating loss at the ethanol segment is pegged at $24.10 million, suggesting a sequential improvement. In the year-ago quarter, the company had generated a profit of $45 million from the business.

Earnings Whisper

Our proven model does not indicate a beat for Valero Energy. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Earnings ESP: The company’s Earnings ESP is 0.00% as the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 20 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Valero Energy carries a Zacks Rank #3.

Meanwhile, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.   

Stocks That Warrant a Look

A few energy stocks with the right combination of elements to come up with an earnings beat this time around are:

ConocoPhillips COP has an Earnings ESP of +1.55% and a Zacks Rank #2. The company is slated to announce first-quarter earnings on Apr 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

Antero Resources Corporation AR is set to report first-quarter earnings on May 1. The stock has an Earnings ESP of +0.59% and a Zacks Rank of 1.

Royal Dutch Shell plc RDS.A has an Earnings ESP of +0.95% and a Zacks Rank of 3. The company is anticipated to release first-quarter earnings on May 2.

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Valero Energy Corporation (VLO) : Free Stock Analysis Report
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
BP p.l.c. (BP) : Free Stock Analysis Report
Antero Resources Corporation (AR) : Free Stock Analysis Report
ConocoPhillips (COP) : Free Stock Analysis Report
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