Can Valero Energy (VLO) Keep the Earnings Streak Alive in Q3?

Leading refining player, Valero Energy CorporationVLO is set to report third-quarter 2017 results on Oct 26, before the market opens.

Last quarter, the company delivered a positive earnings surprise of 13.89%, courtesy of higher throughput margin. Moreover, Valero surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average positive earnings surprise of 18.24%.

Which Way Are the Estimates Headed?

Let's take a look at the estimate revisions in order to get a clear picture of analyst opinion on the stock before the earnings release.

The Zacks Consensus Estimate of $1.84 for third-quarter earnings has been revised upward over the last 30 days, with five firms being bullish and three firms taking a bearish stance. The consensus estimate reflects a year-over-year improvement of about 48.3%.

Analysts polled by Zacks expect revenues of $20,183 million for the third quarter, up 2.7% from the year-ago quarter.

Why a Likely Positive Surprise?

Our proven model shows that Valero is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Valero's Earnings ESP is +0.27%. A favorable ESP serves as a meaningful and leading indicator of a likely positive surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Valero currently has a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) has a significantly higher chance of beating earnings estimates.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Valero's Zacks Rank #2 and +0.27% ESP makes us reasonably optimistic of an earnings beat.

What's Driving Better-than-Expected Earnings?

Among independent refiners, Valero has the most diversified refinery base. The Zacks Consensus Estimate for the company's refining segment earnings stands at $1,372 million, higher than $990 million recorded in the year-ago quarter and $959 million in the prior quarter.

Also, the Zacks Consensus Estimate for throughput margin per barrel from Valero's refining operations stands at $10.88, much higher than $8.66 in the preceding quarter and $9.07 in the year-ago quarter.

We also appreciate the company's strong balance sheet as reflected in the rising cash balance since 2015. Also, the company's debt load has reduced over the same time frame.

Q3 Price Outperformance

During the quarter, Valero has rallied 14%, outperforming the industry's 10.5% gain.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Noble Midstream Partners LP NBLX , headquartered in Houston, TX, has diversified energy infrastructure properties. The company has an Earnings ESP of +1.91% and boasts a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Tesoro Corporation ANDV , based in San Antonio, TX, is a leading refining player. The company has an Earnings ESP of +5.02% and carries a Zacks Rank #3.

Gulfport Energy Corporation GPOR , headquartered in Oklahoma City, OK, is an upstream energy player. The company has an Earnings ESP of +0.97% and carries a Zacks Rank #3.

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With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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