Valero Setting The Pace For Competitors $VLO $APC $BP $CVX $XOM
With Valero’s earnings and some misfortune with a competitor their stock price is looking better all the time. This oil stock is poised for growth as they increase production and take advantage of the market as a whole. It is one of the reasons we continue to feature this company.
Recent reports show that the third round of quantitative easing is already underway. Along with QE3, there is potentially more foreseeable quantitative easing in the future. In reaction, many stock market and business experts are becoming less and less certain as to which stocks will gain from the United States’ government-backed “spurring” of the economy.
There are many reasons why Valero Energy (VLO) presents a great opportunity for investors looking for exposure to the oil and gas sector. Valero showed better than expected results for the second quarter of 2012, with net income of $831 million, or $1.50 per share, compared to net income of $745 million, or $1.30 per share in the second quarter of 2011. Valero has a number of growth catalysts along with QE3 that could push it higher in the coming months, including the expansion of its Port Arthur plant to 95,000 bpd from 85,000 bpd, and completed maintenance projects at its St. Charles and McKee refineries.
Since Valero Energy has a better P/E ratio and better market forces (including legal, acquisition options and competitors’ investment) than its competitors, along with rising oil prices from QE3, I believe Valero is poised to be the most profitable oil and gas company in the short and long-term. When it comes to Valero’s price to earnings ratio (P/E) alone, it looks like a more expensive stock compared its competitors. However, looking at the stock holistically will show that it is a much cheaper stock going forward compared to its competitors in the energy sector. Valero’s baseline price to earnings ratio is 10.75. In contrast, the price to earnings ratio of Exxon Mobil (XOM) is 9.64. Based on these two P/E ratios, investors are forecasting higher earnings potential for Valero’s stock, albeit with a bit more risk than Exxon’s stock. However, Valero has a much greater upside potential.
Due to declining prices of refineries in America, Valero is poised to capitalize on the misfortune of one of its competitors by picking up integral industry assets at fire-sale prices. According to reports by Bloomberg, BP (BP) is expected to divest its ownership of its Texas City refinery. BP is expected to receive $2.85 billion from its ownership of the refinery. However, BP now might get less than half of that figure. These actual figures, according to Bloomberg, are based on valuations for United States’ plants not staying current with climbing margins. Based on the current valuation of the refinery, experts believe Valero can pick this up for as little as $1 billion.
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