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Valero (VLO) Q2 Earnings May Disappoint: Stock to Suffer?
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Leading North American independent refiner and marketer of petroleum products, Valero Energy Corporation (VLO - Free Report) is set to report second-quarter 2016 results on Jul 26, before the market opens. Let’s see how things are shaping up prior to the announcement.
In the preceding three-month period, the company reported a negative earnings surprise of 17.81%. Coming to the earnings surprise history, Valero Energy beat estimates in three of the last four quarters.
Let’s see how things are shaping up for this announcement:
Factors to Consider
Valero’s refining segment, which contributes the bulk of its revenues and earnings, is the major driver of its results. However, given that refiners are buyers of crude, an increase in oil prices will affect crack spread and limit profitability. Further, the current high level of domestic stockpile of gasoline has raised concerns over the performance of refiners in general and Valero in particular.
Moreover, Valero Energy expects a fall in throughput volumes in 2016. Also, continued weakness in its ethanol business is likely to negatively impact earnings for the firm.
Another area of concern for the company is its weak operating cash flow.
However, all is not lost for the company. Among independent refiners, Valero has the most diversified refinery base. The company has a capacity of 3.0 million barrels per day through its 15 refineries located throughout the U.S., Canada and the Caribbean. More importantly, Valero is well positioned to profit from increased refining margins, mainly due to its strategic refinery structure that enables it to use cheaper oil for more than half of its needs.
Earnings Whispers
Our proven model does not conclusively show that Valero Energy is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1(Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. Both the Most Accurate estimate and the Zacks Consensus Estimate for Valero Energy stand at $1.09.
Zacks Rank: Valero Energy carries a Zacks Rank #5 (Strong Sell), which lowers the predictive power of ESP. We caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Currently, the stock is trading at $50.78. We expect the earnings release to lead to stock movement.
Stocks to Consider
Though earnings beat looks uncertain for Valero Energy, here are some companies you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:
Spectra Energy Corp. (SE - Free Report) has an Earnings ESP of +40.00% and a Zacks Rank #1. The company is slated to release earnings on Aug 3.
Enterprise Products Partners LP (EPD - Free Report) has an Earnings ESP of +3.13% and a Zacks Rank #3. The company is slated to release earnings on Jul 28.
Hess Corporation (HES - Free Report) has an Earnings ESP of +1.60% and a Zacks Rank #3. The company is slated to release earnings on Jul 27.
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Valero (VLO) Q2 Earnings May Disappoint: Stock to Suffer?
Leading North American independent refiner and marketer of petroleum products, Valero Energy Corporation (VLO - Free Report) is set to report second-quarter 2016 results on Jul 26, before the market opens. Let’s see how things are shaping up prior to the announcement.
In the preceding three-month period, the company reported a negative earnings surprise of 17.81%. Coming to the earnings surprise history, Valero Energy beat estimates in three of the last four quarters.
Let’s see how things are shaping up for this announcement:
Factors to Consider
Valero’s refining segment, which contributes the bulk of its revenues and earnings, is the major driver of its results. However, given that refiners are buyers of crude, an increase in oil prices will affect crack spread and limit profitability. Further, the current high level of domestic stockpile of gasoline has raised concerns over the performance of refiners in general and Valero in particular.
Moreover, Valero Energy expects a fall in throughput volumes in 2016. Also, continued weakness in its ethanol business is likely to negatively impact earnings for the firm.
VALERO ENERGY Price and EPS Surprise
VALERO ENERGY Price and EPS Surprise | VALERO ENERGY Quote
Another area of concern for the company is its weak operating cash flow.
However, all is not lost for the company. Among independent refiners, Valero has the most diversified refinery base. The company has a capacity of 3.0 million barrels per day through its 15 refineries located throughout the U.S., Canada and the Caribbean. More importantly, Valero is well positioned to profit from increased refining margins, mainly due to its strategic refinery structure that enables it to use cheaper oil for more than half of its needs.
Earnings Whispers
Our proven model does not conclusively show that Valero Energy is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1(Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. Both the Most Accurate estimate and the Zacks Consensus Estimate for Valero Energy stand at $1.09.
Zacks Rank: Valero Energy carries a Zacks Rank #5 (Strong Sell), which lowers the predictive power of ESP. We caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Currently, the stock is trading at $50.78. We expect the earnings release to lead to stock movement.
Stocks to Consider
Though earnings beat looks uncertain for Valero Energy, here are some companies you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:
Spectra Energy Corp. (SE - Free Report) has an Earnings ESP of +40.00% and a Zacks Rank #1. The company is slated to release earnings on Aug 3.
Enterprise Products Partners LP (EPD - Free Report) has an Earnings ESP of +3.13% and a Zacks Rank #3. The company is slated to release earnings on Jul 28.
Hess Corporation (HES - Free Report) has an Earnings ESP of +1.60% and a Zacks Rank #3. The company is slated to release earnings on Jul 27.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>