- Mizuho Securities analyst Nitin Kumar increased the price target on Valero Energy Corporation VLO to $174 from $170 and reaffirmed Buy Rating.
- The analyst expects the company to report a strong margin in the first quarter 2023 despite the turnaround activity. He believes in management's upbeat expectations to maintain higher gross margin capture rates and accelerate improvement in several areas like Gulf Coast.
- It is a sign of operational excellence, given VLO's peers' expectations of reporting a weaker margin in Q1 2023 on turnaround activity across the sector.
- Kumar sees factors such as higher jet fuel demand, the lower negative impact of crude units maintenance on margins, favorable secondary products pricing, and crude backwardation as key contributors to the Q1 2023 earnings.
- Consequently, the analyst expects to witness strong earnings versus consensus, despite around 9% lower throughput (versus Q4 2022) on turnaround activity.
- The analyst's EPS estimate of $7.23 per share stands at around 6% above consensus, given better margin projections and a lower share count reflecting expected share repurchases of around 8 million - 9 million in Q1 2023.
- Also, Kumar projects total refining throughput of 2,774 kbd, broadly in line with the consensus of 2,773 kbd, and towards the higher end of the guidance range of 2,665 kb/d -2,775 kb/d. He anticipates EBITDA of $4,364 million (consensus: $4,195 million), FCF of $2,878 million (consensus: $2,475 million), and capital expenditure of $563 million (consensus: $566 million)
- Price Action: VLO shares closed higher by 1.24% at $136.77 on Tuesday.
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