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$18.30 -0.76 (-3.99%)
10/10/2008 4:01 PM

Valero Energy Corp (VLO)

CAPS Rating:
****

The company owns and operates 18 refineries located in the United States, Canada, and Aruba that produce premium, environmentally clean refined products such as RBOB. It also produces conventional gasolines, distillates, jet fuel, asphalt, petrochemicals.

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Avatar NtscrbEnergy (79.18) Submitted: 12/22/06 9:23 AM : Outperform Start Price: $51.51 VLO Score: -26.95

Valero (VLO) is the largest petroleum refiner and marketer in the US. The company has a fleet of most complex and sophisticated refining assets as against its peers which is spread across US, Canada and Aruba. Currently, 70% capacity is geared toward refining heavy sour crude, and plans are on the move to expand that to more than 80% over the next few years. This kind of focus towards assets that can process even heavy and low quality crude oil would act as a boon in the era where superior quality crude oil is scarce. Further, the company operates the ever growing network of retail outlets in the Great Plains, Southwest and Northeast US.   

Due to the company’s ability to process even low grade oil, its margins would be better as compared to peers, as the feedstock cost would be less for the company. The company has three projects scheduled for the fourth quarter of 2006. These are new hydrotreaters, related to ultra-low sulfur diesel and are in the startup phase in Admore and Port Arthur.
Valero remains interested in acquisitions, particularly in Western Europe as a means of getting access to the Atlantic basin.

The company reported its best third quarter ever. The gross margins and the net margins improved by 4.11% and 2.89% in the third quarter 2006 as against the third quarter 2005. This indicates that the company is cutting down costs, which would act favorable going ahead. Encoding the company’s past performance coupled with growth oriented future strategies, the stock will add up more vigour.

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Avatar NtscrbEnergy (79.18) Submitted: 6/06/07 2:24 AM

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Good times ahead for Valero Energy. Valero decided to sell its Lima refinery to Husky Energy for $1.9 billion plus net working capital of $200 million, due to higher return opportunities available from other refineries. This would help the company in meeting its capital expenditure plan of $3.5 billion for 2007 and would thus help in increase the capacity of existing, as well as acquired facilities. Further, Valero’s recent proposal to expand its oil refinery in Delaware City by 20,000 barrels per day subject to approval from Delaware Department of Natural Resources and Environmental Control (DNREC) can further boost output and thus increase revenues.

US Petroleum Products consumption for the first quarter of 2007 increased by 2.6% on account of growth from all petroleum product groups. For 2007 as a whole, total petroleum consumption is projected to increase by 1.5% Y/Y, whereas U.S. crude oil production is projected to average 5.15 million bbl/d, little changed from the average 5.14 million bbl/d in 2006. As a result, increasing demand of refined petroleum products will help Valero to earn better-than historical margins in the near to medium term.

Valero processes heavy sour crude that is been sold at a considerable discount, which enabled the company to earn returns on invested capital higher than its cost of capital for the first time since inception. Further, the company is working to expand its heavy sour crude capacity to more than 80% by the end of the decade. With strong demand of refined products, coupled with capacity expansion plans and discounted heavy crude trade, Valero looks attractive.

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