Valero (VLO) reported Q2 EPS of $1.37, beating the consensus of $1.33. However, the upside did not come close to FBR’s $1.55 EPS estimate. The firm overestimated VLO’s refining margins. So FBR has decided to tone down its bullishness (a little):
We are lowering our EPS estimates for 2008 (from $4.50 to $3.35) and 2009 (from $6.55 to $5.85) based on 2Q results, current weak refining margins, and a reduction in our future share repurchase assumptions. This reduces our DCF-based price target from $65/share to $55/share.
VLO remains our favourite large-cap refiner because of its ability to process lower-quality, lower-cost crude oils, but given our expectations for gasoline production margins to remain weak, we believe it will be difficult for any of the refiners to gain much positive momentum
FBR maintains OUTPERFORM on Valero (VLO), target cut from $65 to $55.
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