Valero Energy (VLO)

At the outset of the summer driving season, we are downgrading Valero (VLO - Analyst Report) shares to Sell to reflect our weak outlook for margins and a growing list of medium- to long-term macro challenges. A combination of weak demand, excess production capacity, and narrowing crude quality spreads are expected to weigh on near-term margins.

The medium- to long-term outlook also remains cloudy, with unfavorable regulatory changes weighing on demand growth and capacity creep limiting margin gains.

Being the largest independent refiner, Valero remains particularly exposed to this unfavorable macro backdrop. Our current target price is $15 per share.