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A Sum-Of-The-Parts Valuation Leads Barclays To View Valero As Inexpensive

A Sum-Of-The-Parts Valuation Leads Barclays To View Valero As Inexpensive - Valero Energy Corporation NYSE:VLO, SPDR S&P 500 ETF ETF:SPY

Close on heels of the release of Valero Energy Corporation VLO 0.79%'s quarterly results, Barclays said the results will have a positive impact in the near term. Notwithstanding the potential upside, the firm believes the shares are inexpensive based on its sum-of-the-parts analysis and price/tangible book value, as well as relative yield to the S&P.

Paul Cheng, analyst at Barclays, said the second-quarter earnings outperformance relative to his estimate and the consensus estimate will trigger a relief rally, with the anticipated gains premised on the relief that the worst did not materialize despite the negativity surrounding the shares and the sector.

The firm commended the company's ability to generate $2.3 billion in free cash flow from operations and buy back $400 million worth of shares during the quarter. However, the firm sees a let up in the pace of stock buybacks through the end of the year.

Barclays also lowered its 2016 capital expenditure estimate to $2.5 billion from $2.6 billion, given the current run rate of $1.9 billion.

According to the firm, the fair value of Valero is in the lows $70s per share, while the stock is currently trading at $51.74, roughly 35 percent, plus, upside. The firm has an Overweight rating and a $73 price target for the shares of Valero.

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DateFirmActionFromTo
Jun 2016JP MorganMaintainsOverweight
May 2016UBSInitiates Coverage onNeutral
May 2016Tudor PickeringDowngradesBuyHold

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