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What's in Store for Valero Energy (VLO) in Q3 Earnings?

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Leading North American independent refiner and marketer of petroleum products, Valero Energy CorporationVLO is set to report third-quarter 2016 results on Oct 25, before the market opens. Let's see how things are shaping up prior to the announcement.

In the preceding three-month period, the company reported an earnings surprise of 5.94%. Coming to the earnings surprise history, Valero Energy beat estimates in three of the last four quarters.

Let's see how things are shaping up for this announcement:

VALERO ENERGY Price and EPS Surprise

VALERO ENERGY Price and EPS Surprise | VALERO ENERGY Quote

Factors to Consider

Although crude has improved significantly from mid-February lows, the commodity is still way below the level it was trading in mid-2014. Hence, refiners like Valero continue to benefit as their input costs remains low.

Valero is one of the leading refiners in the world with a low cost asset base. It refines cheaper, lower-quality oil and sells some of its yield to profitable international markets. The company has reduced its exposure to the East Coast markets, which are currently unprofitable. Most of the company's assets are concentrated in the profitable regions like Gulf Coast and Mid-Continent. We expect these strategic initiatives to bear fruit and drive the company's earnings.

However, the company faces certain headwinds that might offset the positives discussed above. The demand for end products like gasoline remains weak as the commodity's inventory continues to be above the upper limit of the average range. The company's weak operating cash flow is another area of concern.

Earnings Whispers

Our proven model does not conclusively show that Valero Energy is likely to beat earnings this quarter. That is because a stock needs to have both 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.

Zacks ESP : Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate for Valero Energy stand at 92 cents.

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

We caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Currently, the stock is trading at $54.54. We expect the earnings release to lead to stock movement.

Stocks to Consider

Though earnings beat looks uncertain for Valero Energy, here are some companies you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

Baker Hughes Inc. BHI has an Earnings ESP of +9.09% and a Zacks Rank #2. The company is expected to release earnings results on Oct 25. You can see see the complete list of today's Zacks #1 Rank stocks here .

Spectra Energy Corp. SE has an Earnings ESP of +12.50% and a Zacks Rank #3. The company is expected to release earnings results on Nov 2.

Enterprise Products Partners LP EPD has an Earnings ESP of +3.33% and a Zacks Rank #3. The company is expected to release earnings results on Oct 27.

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ENTERPRISE PROD (EPD): Free Stock Analysis Report

SPECTRA ENERGY (SE): Free Stock Analysis Report

VALERO ENERGY (VLO): Free Stock Analysis Report

BAKER-HUGHES (BHI): Free Stock Analysis Report

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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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