i'll also copy my comments from Russ' thread on VLO from last weekend. this was posted a few days before VLO took down guidance for this quarter:
To: jimmg who wrote (70681) 9/29/2006 8:18:57 PM
From: Wyatt Gwyon Read Replies (2) of 71060
maybe they will warn and/or miss. iirc they guided for at least $3 this Q. that would be a record quarter, and you have to wonder whether the fundamentals will support it.
but let's consider some of the "other hands".
the stock has fallen precipitously since their CC--down 22% or thereabouts [it was around 51 when i wrote that, later falling to under 48 when the "expert" Bernie Schaeffer turned bearish], after being down as much as 30% this past Monday--so i don't know if the stock would tank much further on a warning or a miss. i would think the market is ALREADY assuming a miss.
btw, leading up to their last CC there was a ton of call buying in VLO as many people thought the stock would skyrocket when they "hit it out of the park". but as often happens, that marked a short-term peak for the stock. i would rather do my buying when things look BAD and the stock is discounting lots of BAD NEWS, as it has been the past few weeks.
however, what i DO know is that if they warn, AND if the stock tanks, i will likely regard it as a buying opportunity.
otoh, they haven't warned yet--maybe they just aren't the warning type? they post industry fundamentals to their website every week, so it doesn't take a genius to see how the picture has changed, and the share price shows it.
yes, cracks have been demolished, but they are very volatile. they were even lower in February of this year (down to 86 cents), before spending most of the summer over $20.
in a presentation given on 9/07 (when crack spreads were even lower than now), mgmt said: "Move out of driving season has lead to normal, seasonal decline in margins"
for VLO, crack spread is just part of the equation. sour discounts have held up much better. the Maya discount is at $13.99 compared to a peak in the $17's in July.
also, there is strength in some of the product markets, especially on-road diesel. days of supply are down from last year and also from the 5yr avg. VLO points to the October 15 deadline for ULSD (ultra-low-sulfur diesel) and winter as potential bullish factors.
VLO mgmt:
* Oct. 15 deadline for ULSD plus winter should tighten distillate further
* Important to watch on-road diesel margins, not just heat cracks
--Over 75% of Valero’s distillate production sells at premiums to heating oil
further remarks on fundamentals:
* Transition to ULSD constraining diesel market
--Logistics issues expected
--Some projects are delayed and costs have increased
* "Early"gasoline sulfur credits expire at year-end 2006
--Makes it more expensive in 2007 to blend on-spec gasoline
--Substantial volumes of higher sulfur blending components imported in 2006 with credits purchased by blenders
--Fewer "vintage" credits available for 2007
--Vintage credits likely to get much more expensive
* Entering fall turnaround season in U.S. and Europe
--Expect moderation of clean imports into U.S.
* Bullish outlook for gasoline demand
--Declining pump prices, more people, more vehicles, good economy...
* And remember, winter will come |
