On Friday, the price target of Valero Energy Corporation (NYSE:VLO) shares was lowered to $169 from $187 by Piper Sandler, while the firm maintained an Overweight rating on the stock. The adjustment comes in response to the ongoing challenges faced by refining margins due to high supply levels at 95% utilization and lackluster demand.
According to the analyst at Piper Sandler, the second quarter earnings per share (EPS) estimates have been reduced by approximately 43% compared to previous forecasts. This revision reflects a 42% average downside to the Street's estimates for the sector.
The current market conditions, characterized by a backwardated forward refining margin curve and ample supply, have diminished expectations of a rally during the traditional driving season, barring any supply disruptions.
The analyst noted that despite the bearish sentiment and market direction, stock valuations are approaching levels that could offer some support. However, they are not yet at a point where the firm would consider them to provide a strong foundation.
The market remains sufficiently tight, suggesting that a major outage could potentially push margins higher. Until such an event occurs, the sector, and Valero in particular, is anticipated to face downward pressure leading into the second-quarter results. Valero remains Piper Sandler's preferred stock within the sector for relative long positions.
InvestingPro Insights
Amid the challenges outlined by Piper Sandler, Valero Energy Corporation's (NYSE:VLO) proactive approach to shareholder value is evident, as reflected in the company’s aggressive share buyback strategy, an InvestingPro Tip that underscores management's confidence in the company's value. Additionally, Valero has demonstrated a commitment to shareholders by maintaining dividend payments for an impressive 36 consecutive years, a testament to its stability and reliability as an investment.
InvestingPro Data shows Valero has a market capitalization of $48.99 billion and a price-to-earnings (P/E) ratio of 7.34, indicating that the stock may be undervalued relative to its earnings. Moreover, the company operates with a moderate level of debt and has liquid assets exceeding short-term obligations, suggesting a solid financial footing. With analysts predicting profitability for the year and a notable return on assets of 11.95% for the last twelve months as of Q1 2024, Valero's financial health appears robust despite the current industry headwinds.
For readers interested in a deeper analysis, InvestingPro offers additional tips and metrics, such as the company's low price volatility and its position as a prominent player in the Oil, Gas & Consumable Fuels industry. To access these insights and more, consider an InvestingPro subscription, and don't forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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