Why Valero Energy Corporation Shares Slipped Today

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Valero Energy Corporation (NYSE: VLO  ) fell about 2% this morning after Bank of America downgraded the petroleum refiner from buy to neutral.

So what: Along with the downgrade, analyst Doug Leggate reiterated his price target of $63, representing about 12% worth of upside to yesterday's close. So while momentum traders might be attracted to Valero's price strength over the past six months, Leggate's call could reflect a growing sense on Wall Street that its valuation is becoming a bit stretched.

Now what: According to B of A, Valero's long-term risk/reward trade-off is pretty balanced at this point. "From here, we believe upward earnings momentum that has underpinned a threefold jump in sector valuations has stalled," said Leggate. "From here, we recategorize the US refiners as a trading call reprising the traditional characteristics of the sector and drawing a line under the structural rerating associated with a US crude advantage that has largely played out." When you couple Valero's hot stock price with its hefty debt load and volatile business model, it's easy to understand B of A's cautiousness. 

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  • Report this Comment On April 22, 2014, at 2:05 PM, scarman59 wrote:

    May have dropped 2% out of the gate this morning but it's back in positive territory now with another new 6+ year high! The WTI/Brent margin seems to have bounced off a low just above $3...maybe it will drop back down instead of go back up to double digits but VLO is still exporting plenty of product overseas and gas prices are up with Spring/Summer coming in and maintenance projects going on. Target is $63 so this morning was just another buying opportunity for many.

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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Related Tickers

8/28/2015 4:02 PM
VLO $59.00 Up +0.65 +1.11%
Valero Energy Corp CAPS Rating: ****