On Friday, Wells Fargo (NYSE:WFC) adjusted its stance on Valero Energy (NYSE:VLO) shares, decreasing the price target to $156 from the previous $179. The firm has maintained its Equal Weight rating on the stock.
The adjustment was made following the revision of earnings estimates for the second quarter of 2024. It reflects a more cautious view due to current market conditions, which have seen significantly lower refining margins, known as cracks.
The revised earnings per share (EPS) estimates for Valero's second quarter of 2024 now stand at $2.51, down from the previous estimate of $4.28. Similarly, the full-year 2024 EPS forecast has been reduced to $14.85 from $16.59.
The reduction in expectations is attributed to a combination of seasonal factors and crude oil backwardation, a market situation where current prices are higher than prices for future delivery, which impacts refining profits.
Despite the cut in earnings estimates, the analyst noted some positive adjustments were made. These include an increased outlook for Valero's Ethanol segment, which is expected to perform better. However, the expectations for the Refining and Distribution (RD) segment have been lowered, reflecting the challenging environment the sector is facing.
The new price target of $156 is based on a discount to Wells Fargo's sum-of-the-parts (SOTP) analysis on the company's estimated 2025 EBITDA by segment. This approach takes into account the various components of Valero's business and the earnings before interest, taxes, depreciation, and amortization they are expected to generate.
Valero Energy's stock price target has been revised in light of these updated estimates and the current market dynamics, with a focus on the refining multiples that guide valuation.
The Equal Weight rating suggests that Wells Fargo views the company's stock as adequately valued at the time of the report, relative to the firm's expectations for the stock's performance.
In other recent news, Valero Energy has been subject to several adjustments by analysts due to anticipated shortfalls in its second quarter of 2024 earnings. Mizuho Securities reduced the price target to $165 from $171, maintaining a Neutral rating on the stock.
This is primarily due to anticipated shortfalls in earnings before interest, taxes, depreciation, and amortization (EBITDA), free cash flow (FCF), and earnings per share (EPS). Similarly, Piper Sandler lowered its target for Valero shares to $169 due to refining margin challenges, while maintaining an Overweight rating on the stock.
Furthermore, U.S. crude oil imports have surged to a near two-year peak, largely due to refiners ramping up purchases of heavy crudes from Canada and Latin America in anticipation of the summer driving season. Notably, Valero Energy was one of the major importers for May.
These are the recent developments for Valero Energy Corporation (NYSE:VLO). The company's upcoming financial report for the second quarter is expected to provide further insights into the company's performance amid these challenging market conditions.
InvestingPro Insights
Amid the adjustments to Valero Energy's earnings estimates by Wells Fargo, real-time data from InvestingPro provides additional context to the company's financial health and market position. Valero's market capitalization stands robust at $47.95 billion, and the stock trades with a price-to-earnings (P/E) ratio of 7.19, which is lower than the adjusted P/E ratio for the last twelve months as of Q1 2024 at 6.86. This suggests a relatively attractive valuation in comparison to earnings. Additionally, the company maintains a solid dividend yield of 2.92%, reflecting its commitment to returning value to shareholders, having maintained dividend payments for 36 consecutive years.
InvestingPro Tips highlight that Valero is a prominent player in the Oil, Gas & Consumable Fuels industry and operates with a moderate level of debt, which is a positive sign for investors looking for stability. Moreover, analysts predict the company will be profitable this year, and it has been profitable over the last twelve months, underscoring its financial resilience. For readers interested in a deeper analysis, there are 11 additional InvestingPro Tips available, which can be accessed for Valero Energy at https://www.investing.com/pro/VLO. To get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, use the coupon code PRONEWS24.
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