VLO - Embedded Expectations Analysis - 2020 02 06
ï€ Valero Energy Corporation (VLO:USA) currently trades below recent averages relative to UAFRS-based (Uniform) Earnings, with a 16.5x Uniform P/E. At these levels, the market has somewhat bearish expectations for the firm, and management may be concerned about new fuel regulations, demand, and operating costsï€ Specifically, management may be concerned about headwinds from new International Maritime Organization regulations, the progress of rail volume negotiations with producers in West Canada, and the impact of their VGO asset relocation. Moreover, they may be exaggerating the potential for demand increases from higher octane and fuel efficiency standards and the likelihood medium sour crudes become economical. Furthermore, management may lack confidence in their ability to manage operating costs, increase net cash provided by operating activities, and return additional value to stockholders. Finally, they may be concerned about the impact of their supply chain expansion, their liquidity position, and product inventory levels
Valero Energy is an international manufacturer and marketer of transportation fuels and petrochemical products. The company's segments include: Refining, which includes its refining operations, the associated marketing activities, and logistics assets that support its refining operations; Ethanol, which includes its ethanol operations, the associated marketing activities, and logistics assets that support its ethanol operations; and Renewable Diesel, which includes the operations of its joint ventture, Diamond Green Diesel Holdings LLC, which owns and operates a renewable diesel plant in Norco, LA.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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