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Can Valero Energy (VLO) Maintain Earnings Beat Streak in Q3?

Zacks Equity Research
Updated

Valero Energy Corporation VLO is set to report third-quarter 2018 results on Oct 25, before market open.

The leading independent refining player surpassed the Zacks Consensus Estimate in the last four quarters, the average positive earnings surprise being 7.2%. Let’s see how things are shaping up prior to the announcement.
 

Valero Energy Corporation Price and EPS Surprise

 

Valero Energy Corporation Price and EPS Surprise | Valero Energy Corporation Quote

 

Which Way are Estimates Treading?

Let’s take a look at the estimate revision trend to get a clear picture of what analysts feel about the upcoming earnings release.

The Zacks Consensus Estimate for third-quarter earnings of $1.95 has seen only one upward revision and no downward movement in the past seven days. The estimate reflects year-over-year growth of 2.1%.

Further, the Zacks Consensus Estimate for revenues is pegged at $31,820 million for the impending quarter, showing an increase of 35.1% year over year.

Factors to Consider

Valero Energy is among the leading independent refining players in the domestic market with 15 petroleum refineries. The Zacks Consensus Estimate for throughput margin per barrel from the company’s refining operations is pegged at $10.84, higher than $10.80 in the preceding quarter but lower than $10.94 in the year-ago quarter.

Higher expected throughput margin is likely to aid the company’s refining businesses. As a result, the Zacks Consensus Estimate for third-quarter operating income in the refining segment is pegged at $6,665 million, considerably higher than $1,387 million and $1,429 million in the previous quarter and the year-ago quarter, respectively.

Moreover, the Zacks Consensus Estimate for operating income in the ethanol segment is pegged at $44.16 million, up from $43.00 million in the preceding quarter but down from $82 million in the prior-year quarter.

The Zacks Consensus Estimate for operating income in the VLP segment is pegged at $88 million, higher than $83 million reported in the preceding quarter and $69 million in the year-ago quarter.

We can conclude that better-than-expected performance by all the business units are expected to drive Valero Energy’s third-quarter results.

Earnings Whisper

Our proven model does not show a beat for Valero Energy this earnings season. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Earnings ESP: The company’s Earnings ESP is -0.75% as the Most Accurate Estimate is $1.93, while the Zacks Consensus Estimate is pegged at $1.95.  You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Valero Energy carries a Zacks Rank #3.

Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. Meanwhile, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.   

Q3 Price Performance

During the quarter, the company’s shares surged 2.6% compared with the industry’s 4.1% rise.

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Stocks That Warrant a Look

Stocks in the energy sector that have a positive Earnings ESP and a favorable Zacks Rank are:

Plano, TX-based Denbury Resources Inc DNR is an exploration and production (E&P) company engaged in the acquisition, development, operation and exploration of oil as well asnatural gas properties. The company has an Earnings ESP of +13.04% and has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Enterprise Products Partners L.P. EPD, based in Houston, TX, is a leading midstream energy player in North America. The company has an Earnings ESP of +3.24% and carries a Zacks Rank #2.

Houston, TX-based EOG Resources, Inc EOG is a major independent oil and gas exploration and production player. The company has an Earnings ESP of +1.71% and a Zacks Rank #3.

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Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
 
Valero Energy Corporation (VLO) : Free Stock Analysis Report
 
Denbury Resources Inc. (DNR) : Free Stock Analysis Report
 
EOG Resources, Inc. (EOG) : Free Stock Analysis Report
 
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