Market players energetically bought into Valero Energy (VLO +4.69%) on the second trading day of the week. A key reason for this was a very substantial price target raise on the stock by an analyst at a high-profile American bank. Buoyed by that positive development, Valero's stock closed the day nearly 5% higher.
Fueling a rally
The prognosticator in question was Citigroup's (C -5.60%)Vikram Bagri, who upped his fair value assessment on Valero to $485 per share -- quite some distance above his previous level of $302. Perhaps somewhat surprisingly, despite the heavy lift, he maintained his neutral recommendation on the mid- and downstream energy stock.
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It wasn't immediately clear why Bagri decided to make the change, but Valero has seen numerous price target increases in recent days and weeks.
Several peers at large U.S. banks enacted hikes, including Bank of America's (BAC -1.14%) Jean Ann Salisbury. Early in October, she adjusted her Valero price target to $414 per share from $395. According to reports, she waxed bullish about positive developments in the company's long-term refinery capture and widening discounts in heavy crude oil.
NYSE: VLO
Key Data Points
What goes up must...
The recent price target changes were largely due to a surge in Valero's stock price to an all-time high. This alone would make me wary of the stock, despite Valero's impressive recent increases in "crack spreads" (i.e., refining profit margins) and its numerous competitive advantages, such as relatively low costs. This is a cyclical industry, and it feels we're very much at the top of a cycle. I believe there's more downside potential than upside with this stock.
