Valero Energy Corp. Mixed Reaction (VLO)

By Douglas A. McIntyre Published Aug 1, 9:29AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Valero Energy Corp. (NYSE:VLO) posted earnings after yesterday’s close. Profits came in at an all-time high on high oil prices. The refiner’s net income was over $2.2 Billion with an EPS report of $3.89. Revenues were lower than the prior year at $24.2 Billion, but that is reflective of refineries being partially closed and from a refinery sale. The First Call estimate had consensus earnings estimates at $3.76.

Some refinery repairs are ongoing and it is already expected that most refiners aren’t able to operate at 100% capacity right now. The buybacks continue in the stock as well, with $2 Billion earmarked for share stability and lowering some of its outstanding shares. Valero’s earnings leave quite a bit of room for improvement in its dividend, particularly if it wants to differentiate itself from an industry that is stingy on using profits to pay out income in the form of dividends.

The research note that stood out the most today, at least so far, was from Goldman Sachs. The brokerage firm noted that investors should use this pullback as an opportunity to add shares as it looks inexpensive on a historical basis, despite the fact that Goldman had to trim this year EPS estimates from $12.25 down to $10.00 and it trimmed next year EPS targets from $12.50 to $12.00. If those estimates hold true, the refining giant trades at a mere 6.5-times forward EPS targets and only about 5.4-times next year EPS targets.

Even if high prices are or aren’t sustainable quite at the current record-high prices, those multiples are pretty hard to argue against for investors seeking value and upside in the energy markets. Goldman Sachs sees the potential for more than a 50% gain to its target of $105.00 over the next 12-months.

Valero opened slightly to the downside, and shares are now down over 2.5% to $65.20. Over the last 52-weeks, its shares have traded as low as $46.84 and as high as $78.68.

Jon C. Ogg
August 1, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.