Valero's Refinery Base Robust, Weak Ethanol Business A Drag
Zacks Investment Research | Jun 09, 2016 10:33PM ET
On Jun 8, 2016, we issued an updated research report on Texas-based Valero Energy Corporation (NYSE:VLO) .
Valero offers the most diversified refinery base among all independent refiners with a capacity of 3.0 million barrels per day in its 15 refineries across the U.S., Canada and the Caribbean. Also, Valero is poised to benefit from the increased refining margins on the back of its strategic refinery structure that enables it to use cheaper oil for more than half of its needs.
This Zacks Rank #3 (Hold) stock 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 in profitable international markets. Interestingly, 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 the Gulf Coast and Mid-Continent.
The energy firm expects to spend $2.6 billion on capital projects in 2016 of which, $1 billion has been earmarked for growth investments. The company will now be able to concentrate its capital on strategic growth projects as well as turnarounds. It is also likely to witness an improvement in free cash flow, which will enable it to return more to shareholders via dividends, share buybacks and through debt reduction planned for 2016. Notably, the company increased its quarterly dividend three times in 2015.
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