Valero Energy Corporation (NYSE:VLO) — I last reviewed Valero Energy on Aug. 12, recommending that traders buy the stock at $55 with a target of $65. And although VLO didn’t make it to $65, it is an even better buy now, and at the same price.
VLO is the world’s largest independent refiner and marketer of petroleum products. Standard & Poor’s views Valero as a chief beneficiary from rising oil production from shale and to a lesser extent from Canadian oil sands, since most of this oil travels through the mid-states to the Gulf Coast, where Valero is the largest refiner.
Increasing supplies enable this company to boost exports at its volition, directing it to South America and/or Europe, whichever is most profitable. S&P still has a four-star buy on VLO. But it is a better buy now than in August because crude price averages are $5 higher, and with higher gasoline demand, both factors boost its profit spread.
Second-quarter Capital IQ consensus estimates were exceeded by 8 cents at $1.07. Their next quarterly earnings is due on Oct. 27. S&P predicts Q3 be reported at 95 cents per share, with the consensus at 97 cents and the high estimate at over $1.50. Analysts estimate EPS of $3.33 for 2016 and $5.20 in 2017. S&P also believes that VLO could boost its dividend in 2017 as earnings recover. VLO shares currently pay a dividend of $2.40 for a dividend yield of 4.3%.
In July, above-average buying rallied the stock from under $50, forming a “Deep V Bottom, pushing the stock higher and penetrating its 50-day moving average at $52. MACD just issued a buy signal, indicating that the high-volume one-day round of profit-taking in late-September was overcome by recent buying.
In addition to the MACD buy signal, the stock closed above its 50-day moving average for the first time since the September correction. The “Deep V” bottom has been confirmed. Thus, traders should attempt to buy VLO at $55 with a target of $65 for a proposed gain of 18%.
Investors should also consider this high-quality refiner with its above-average dividend yield as a long-term investment given the growing need for refined products.
