Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Valero Energy Corporation (VLO): Has The Company Already Seen Its Best Days?

Valero Energy Corporation (NYSE:VLO)On Tuesday, Valero Energy Corporation (NYSE:VLO) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they’ll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you’ll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Refining stocks have done extremely well lately, with relatively cheap domestic crude fueling low input costs while high international prices for gasoline and other refined products widen crack spreads and boost profits for Valero Energy Corporation (NYSE:VLO) and its peers. But how long can those good times continue? Let’s take an early look at what’s been happening with Valero Energy Corporation (NYSE:VLO) over the past quarter and what we’re likely to see in its quarterly report.

Stats on Valero

Analyst EPS Estimate $0.98
Change From Year-Ago EPS 216%
Revenue Estimate $30.41 billion
Change From Year-Ago Revenue (13.5%)
Earnings Beats in Past 4 Quarters 4

Source: Yahoo! Finance.

Will Valero keep pressing higher this quarter?
Analysts have gotten even more optimistic on Valero’s earnings recently, raising their earnings-per-share estimates by $0.17 for the first quarter and by $0.30 for the full 2013 year. Yet even though the stock has posted an 8% gain since late January, it has pulled back considerably in the past month from more substantial gains.

Valero has been able to cash in on extremely strong conditions in the market for refined energy products, especially gasoline. In large part, international demand is to blame for continued high gasoline prices in the U.S., with Venezuela having become a huge new player in importing gasoline. Competitors are taking advantage, with rival Phillips 66 (NYSE:PSX) having boosted its exports by half in the fourth quarter of 2012 in order to maximize its benefit from those favorable conditions. Still, Valero Energy Corporation (NYSE:VLO) has a huge share of between 20% and 25% of all the U.S. petroleum products that get sent abroad.

Yet Valero and its peers have seen new challenges pop up recently. Price spreads between U.S. West Texas intermediate and European Brent crude oil have narrowed considerably in April, threatening those wide margins. That’s especially bad news for HollyFrontier Corp (NYSE:HFC)Tesoro Corporation (NYSE:TSO), and Valero Energy Corporation (NYSE:VLO), whose western-U.S. exposure has helped those companies benefit the most from cheap mid-continent crude supplies. Phillips 66 (NYSE:PSX)’s recent deal to transport U.S. crude by rail may look a lot less lucrative if spreads narrow further, and Valero and the rest of the industry will inevitably see profits shrink if the financial incentive to export gasoline gets smaller.

Valero could also feel a big hit from regulation. Ethanol credits that Valero and other refiners are required to obtain have soared in cost lately, raising fears that the mandate for higher ethanol use will lead to higher prices at the pump for consumers and a big decrease in gasoline consumption from refiners. Meanwhile, proposed new EPA regulations to reduce sulfur, nitrogen oxide, and benzene levels in gasoline would require massive capital investment from refiners in order to comply.

In Valero Energy Corporation (NYSE:VLO)’s quarterly report, watch for how the refiner addresses all of these challenges. After having earned so much for so long, any hint that Valero could have seen the end of its growth phase could add to the stock’s recent troubles.

The article Has Valero Already Seen Its Best Days? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...
X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!