Valero Energy Corp. (NYSE: VLO) is set to report earnings Tuesday morning.  First Call has estimates pegged at $1.46 per share and $36.43 billion in revenue.  Oil companies and refiners rarely give guidance. Valero is expected to post earnings for the coming quarter of $0.97 and $26.14 billion in revenues.  Be advised that the earnings range is rather wide and the revenue range is only a sample from a handful of analysts.

There is one key issue here with the earnings expectations.  These estimates are all over the place as theprice of oil has tanked and as analysts have a hard time decidingwhether lower oil prices are good for refiners or if costs may stay higher than the sell-through prices.

Earlier this month, Moody’s raised its debt rating to "Baa2"in favor of its investment grade status.  Just last week, Oppenheimer raised its rating to "outperform" and in the prior weekDeutsche Bank cut its rating to "hold."

There is an issue that will really work for Valero if pricesstabilize and get into a trading range rather than the patternof straight up prices followed by straight down prices.  With a $16.00+share price, this stock trades at roughly 4-times both 2008 and 2009earnings.  So, unless the company reports horrific earnings, then the valuations here are likely to offersome serious support.

At $16.83, this refinery leader’s stock is down almost 80% from its 52-week highs.

Jon C. Ogg
October 27, 2008

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