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Valero Enters South American Fuel Market, Aims Growing Demand

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Valero Energy Corporation (VLO - Free Report) recently acquired Pure Biofuels del Peru S.A.C. from a private-equity firm, Pegasus Capital Advisors L.P. The deal flags Valero's first investment in infrastructure in South America. Valero, which had $4.7 billion in cash and equivalents as of Mar 31, funded the deal with cash. The financial details of the deal are yet to be disclosed.

Valero’s Gains

Pure Biofuels is the third-largest importer of fuels in Peru, and has terminals of refined products in Callao and Paita located in northern Peru. The deal provides Valero with a land adjoining the Callao terminal, which can uphold an expansion of the terminal’s storage capacity in the future. It has a product storage capacity of around one million barrel.

In mid-2018, the Paita terminal is expected to come online. It has an initial product-storage capacity of 180,000 barrels and enough land for expansion in the future.

Moreover, Pure Biofuels has a biodiesel production facility. The inclusion of the biodiesel unit is highly profitable for Valero since Peru blends biodiesel with fuels for reducing greenhouse gas emissions. It is to be noted that Peru depends heavily on biodiesel and ethanol imports since the government introduced blending rules in 2010 and 2011 to improve the quality of air in the country.

Additionally, the deal is in line with the company's strategy of enhancing product exports as well as fuels volumes. The acquired assets are also expected to enable Valero to benefit from the growing demand for fuels in South America. North America's one of the largest refining companies, Valero, along with its Gulf Coast refineries is included in this strategy, which have access to low-cost crude and natural gas.

Price Performance

San Antonio, TX-based Valero has gained 76.8% in the past year compared with 13.6% growth of its industry.

Zacks Rank and Stocks to Consider

Valero has a Zacks Rank #3 (Hold). 

Investors interested in the Energy sector can opt for some better-ranked stocks in the same space like Nine Energy Service, Inc. (NINE - Free Report) , CNOOC Ltd. (CEO - Free Report) and BP p.l.c. (BP - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based Nine Energy Service is an onshore service provider. For 2018, the bottom line is likely to be up 164.5%. In the last reported quarter, the company delivered a positive earnings surprise of 28.6%.

Hong Kong-based CNOOC is an integrated energy company. The company’s top line for 2018 is anticipated to improve 49% year over year, while its bottom line is expected to increase 83.3%.

London-based BP is an integrated oil major. For 2018, its bottom line is likely to be up 67.6%. In the last four reported quarters, the company delivered a positive average earnings surprise of 29.6%.

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