Valero Energy Scales 52-Week High - Analyst Blog

Shares of Valero Energy Corporation VLO hit a 52-week high of $55.98 during Thursday's trading session. However, the stock closed the session at $55.79, which reflects a solid return of 63.6% over the past six months. The average trading volume for the last three months aggregated 8,481,450 shares.

Among all the independent refiners, Valero offers the most diversified refinery base with a capacity of 2.9 million barrels per day in its 16 refineries throughout the U.S., Canada and the Caribbean. More importantly, Valero is best positioned to profit from increased refining margins mainly on account of its strategic refinery structure that enables it to use cheaper oil for over half of its needs.

Valero spun off an 80% stake from its retail arm – CST Brands Inc. CST – through a tax-advantaged distribution to shareholders, to unlock value on May 1, 2013. The spin-off generated an immediate net cash benefit of $500 million, after shelling out $220 million in taxes. The remaining 20% was divested by the company on Nov 14. We feel the move would help the company to concentrate on its industry-specific strategies.

Further, last December, the company came out with an initial public offering for its logistics master limited partnership MLP – Valero Energy Partners LP VLP. The MLP not only enables Valero to monetize its existing infrastructure, but also offers a favorable financing option for logistics projects.

Valero remains optimistic on the ongoing economic growth projects. These are expected to drive significant improvement in earnings in the future. The company also replaced all imported light sweet crude oil used at its Gulf Coast and Memphis, TN, refineries with cheaper North American crude oil recently.

However, Valero's earnings decreased 5% year over year in the fourth quarter of 2013. The decline stemmed from lower refining throughput margins in each of the company's regions and higher refining operating expenses. Refiners in the U.S. generally face uncertainty regarding future regulations pertaining to greenhouse gas emissions and the potential for higher requirement of biofuels.

Currently, Valero carries a Zacks Rank #1 (Strong Buy). Among its peers, Patterson-UTI Energy Inc. PTEN with the same Zacks Rank is also worth considering.