Valero Energy Corporation (VLO) — This is the largest independent petroleum refiner and marketer in the world. It operates 15 petroleum refineries and 11 ethanol plants, and its gasoline and diesel products are marketed through about 7,400 retail outlets.
Capital IQ rates VLO stock a “strong buy,” predicting 2015 operating earnings will jump 18% to $8.24 per share, a recent increase of 25 cents. Its analysts also increased their 2016 EPS estimate by 24 cents to $6.83. And they upped their 12-month price target for VLO stock by $5 to $79, which is based on a multiple of 8 times their projected 2016 cash flow, which they note is above its peers.
Finally, Capital IQ expects we could see management hike the quarterly dividend, currently at 40 cents a share, since it amounts to a payout ratio of just 23% based on 2016 projections.
VLO stock is one of the few energy stocks that has not broken its long-term uptrend line. Instead, shares have been ramping up on a series of step ups that began with a breakout in 2012 at about $25.
Support now rests slightly below the 200-day moving average at about $58. A near-term breakout would occur with a close above shallow resistance at $61.
My buy under price for VLO stock is $58. The target for this trade is the top of the Aug. 21 gap down at $67.10 within two months. If successful, this trade would return 16%. VLO stock is also appropriate for long-term investors who could see much higher capital gains, plus benefit from the 2.6% current dividend yield and any potential increases.
