Novice Investing - Valero Future Remains Sour

Date: Thursday 18th 2010f March 2010 07:09:28 AM

Valero Future Remains Sour - 01/11/2010

By: Hari Wibowo

		Valero Energy Corporation. One Valero Way San Antonio, TX 78249 United States

Valero Energy Corp. (VLO) closed the year 2009 with a horrible performance. It is expected to report a net loss per share of $ 0.93 per share. Early in 2009, we felt that Valero will spot a better refiner margin due to the huge drop in crude oil price, compared to year 2008. However, demand continued to slacken while new refineries from abroad had been coming on-stream. As a result, Valero idled its facilities in February 2009. Instead of shipping crude oil, those very same middle eastern countries has been shipping out diesel and kerosene into the US now.

With margin from the entire year available, in retrospect, we can find out how refiners would be doing. As usual, we utilized Californian State government estimated gasoline price breakdown. For 2009, average refiner margin came in at $ 0.475 /gallon versus $ 0.342 / gallon in 2008. While this is a far cry from $ 0.648/gallon margin spotted in 2007, margin did improve in 2009.

Looking ahead for 2010, we expect energy prices to stay high and Valero's refiner margin to come under pressure. A combination of lower demand and higher refinery capacity abroad does not bode well for Valero. With refiner margin of $ 0.475/gallon in 2009, Valero spotted a gross profit of roughly $ 7.0 Billion. Selling General Administrative expense came in at around$ 5.0 Billion, while other expense remains at $ 1.4 Billion. Net profit for the year will be roughly $ 0 in such a case. With 2010 refiner margin to be lower than 2009, we should expect Valero to report a net loss for 2010. Latest Yahoo! estimate shows that analysts expect Valero to report a net profit of $ 1.29 per share in 2010. That is too optimistic, in our opinion. Barring any surprise upside to refiner margin, one should expect Valero to report a breakeven year at best. With Valero spotting a $ 6.0 Billion debt, investors should be more careful when investing in Valero at current price of $ 18.50 per share.

	Refiner Margin ($/ Gallon)
	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
2009	$ 0.70	$ 0.68	$ 0.47	$ 0.59	$ 0.54	$ 0.50	$ 0.40	$ 0.55	$ 0.55	$ 0.33	$ 0.19	$ 0.20
2008	$ 0.22	$ 0.38	$ 0.36	$ 0.39	$ 0.31	$ 0.55	$ 0.15	$ 0.33	$ 0.45	$ 0.51	$ 0.09	$ 0.39
2007	$ 0.58	$ 0.76	$ 1.06	$ 1.09	$ 1.06	$ 0.76	$ 0.61	$ 0.37	$ 0.34	$ 0.42	$ 0.39	$ 0.34
2006	$ 0.38	$ 0.48	$ 0.57	$ 0.74	$ 1.00	$ 0.81	$ 0.81	$ 0.60	$ 0.41	$ 0.50	$ 0.60	$ 0.54

END

Have questions or want to comment on this article? Proceed here

Distributing your own investing content is easy. Simply, click here.

Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Valero Energy Corp.. (VLO) or any other securities.

[Resources] [Submit Your Article]