Valero Energy Corporation VLO is set to report fourth-quarter 2017 results on Feb 1, before the market opens.

Last quarter, the leading refining player delivered a positive earnings surprise of 4.37%, courtesy of higher throughput margin. Moreover, earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average positive surprise being 10.26%.

Which Way Are Estimates Headed?

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

The Zacks Consensus Estimate for fourth-quarter earnings of $1.11has been revised downward over the last 30 days, with five firms being bearish and one firm taking a bullish stance. The consensus estimate reflects year-over-year improvement of about 37%.

Analysts polled by Zacks expect revenues of $22,523 million for the fourth quarter, up 8.7% from the year-ago quarter.

Factors to Consider

Among independent refiners, Valero Energy has the most diverse refinery base. The Zacks Consensus Estimate for operating income of VLP segment for the fourth quarter is pegged at $71 million, up from $69 million reported in the preceding quarter.

The company’s strong balance sheet as reflected from the rising cash balance since 2015 is encouraging. Moreover, the overhaul of the nation’s tax code is expected to bolster the refiners. With the implementation of the law, the corporate income tax will be lowered from 35% to 21%.

However, the company’s escalating debt levels over the past six quarters are a concern. From no long-term debt as of December 2015, Valero Energy’s long-term debt is currently at $8.4 billion.

The Zacks Consensus Estimate for operating income of ethanol segment for the fourth quarter is pegged at $1 million, down from $82 million reported in the preceding quarter.

The Zacks Consensus Estimate for operating income of refining segment for the fourth quarter is pegged at $933 million, down from $1,429 million reported in the preceding quarter. Also, the Zacks Consensus Estimate for throughput margin per barrel from Valero’s refining operations stands at $9, lower than $10.94 in the preceding quarter. Lower expected throughput margin will likely lead the lower projected profit for refining segment.

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 for the company is -5.58%. This is because the Most Accurate estimate is pegged at $1.04, while the Zacks Consensus Estimate is at $1.11. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Conversely, we caution against all Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Q4 Price Performance

During the quarter, Valero Energy’s shares have rallied 19.5% compared with the industry’s 15% gain.   


 

Stocks to Consider

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

Headquartered in Irving, TX, Pioneer Natural Resources Company PXD is an independent oil and gas exploration and production company. The company has an Earnings ESP of +4.85% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Houston, TX, Cabot Oil & Gas Corporation COG is an independent oil and gas exploration company with producing properties mainly in the continental United States. The company has an Earnings ESP of +15.15% and a Zacks Rank #1.

Headquartered in Pittsburgh, PA,EQT Corporation EQT is an energy company that focuses on natural gas supply activities in the Appalachian area. The company has an Earnings ESP of +15.48% and a Zacks Rank #3.

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EQT Corporation (EQT): Free Stock Analysis Report
 
Valero Energy Corporation (VLO): Free Stock Analysis Report
 
Pioneer Natural Resources Company (PXD): Free Stock Analysis Report
 
Cabot Oil & Gas Corporation (COG): Free Stock Analysis Report
 
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