In an Oct. 1 note, Raymond James analyst Justin Jenkins reported that Valero Energy Corporation (NYSE:VLO) adherence to a disciplined strategy continues to drive strong performance in this challenging oil and gas environment.
Specifically, the manufacturer and marketer of transportation fuels and petrochemical products has been "improving returns in refining while growing in the higher value midstream and renewable segments that also support refining ops," Jenkins pointed out. It also continues to maintain a strong balance sheet and return cash to shareholders.
However, Valero is facing various market headwinds, and as such, Raymond James slightly lowered its Q3/19 expectations for the company, Jenkins indicated.
For one, it reduced its Q3/19 earnings per share estimate to $1.30 from $1.50.
Two, for Valero's Refining segment, Raymond James lowered its Q3/19 gross margin forecast to $9.69 per barrel from $9.79 in light of modest capture difficulty in the Midcontinental and North Atlantic regions.
Three, due to the expectation that higher feedstock costs will negatively impact margins, Raymond James now predicts a Q3/19 operating loss in the Ethanol segment of $28 million, the biggest change to its Valero model. This new figure compares to an $8 million revenue win in Q2/19.
On a positive note, Jenkins concluded that "H2/19 has thus far shaped up better than many had feared, and we continue to expect IMO 2020 to prove to be a solid tailwind for the group, with Valero a particular winner."
Accordingly, Raymond James has left its Q4/19 and 2020 projections on Valero the same. Further, the financial services firm maintained its Outperform rating and $95 per share target price on the energy firm, whose stock is trading now at around $82.66 per share.