We reiterate our Underperform rating for Valero (VLO) shares as
a combination of weak demand, excess production
capacity and narrowing crude quality spreads are
expected to weigh on near-term margins.
In addition to the
near-term margin issues, commissioning of new refineries
and extension projects indicate future struggle as global
demand for almost all fuel products (except gasoline) is
trending down.
The medium to long-term outlook also
remains cloudy, with unfavorable regulatory changes
(growing biofuel mandates) weighing on demand growth
and limiting margin gains. Being the largest independent
refiner, Valero remains particularly exposed to this
unfavorable macro backdrop.Zacks Investment Research
