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Gold/Mining/Energy : VLO: Valero Energy Corp. -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (176)	5/30/2007 2:04:16 PM
From: carranza2	Respond to of 299

Here's the latest from Goldman on refiners, a note in which VLO figures prominently. A tip of the hat to you for posting it elsewhere: Americas: Energy: Oil - Refining: Refining in pictures: Raising EPS estimates, target prices; reiterate Attractive view Goldman Note May 29, 2007 United States Industry context We see the refining sector as offering the best combination of EPS revision potential, ROCE strength, and valuation across the broad energy sector. We are meaningfully raising EPS estimates for refining-leveraged companies for 2007-2009. For the four pure-play refiners we cover, our updated EPS estimates are now 40%, 62%, and 77% above the respective First Call consensus projections for 2007, 2008, and 2009. Source of opportunity We believe that the Street's obsession with inevitable short-term margin volatility misses the much bigger picture in terms of the sustainability of refining margins well above levels currently reflected in equities even if substantially below current crack spreads. We see 26% upside on average to 12-month target prices for the four independent refiners we cover. Catalyst We believe that upward revisions to consensus EPS estimates will drive refining equities higher. Risks The key risk to our bullish outlook would be a US/global recession that drove the benchmark Gulf Coast 3:2:1 refining margins sustainably below $10/bbl. Best buy idea Our favorite refining pure-play remains Valero Energy (Conviction Buy), which has 41% upside to a revised $105 ($90 before) 12-month target price. Our favorite small-cap refiner is Frontier Oil (Neutral), which has 23% upside to a revised $47 ($42 before) 12-month target price. Among integrated oils, Marathon Oil (Buy) is our top pick, primarily for its refining leverage, with 19% upside to a revised $140 ($122 before) 12-month target price. Our target prices are based on asset value, cash flow, and P/E valuation analyses. Best sell idea VeraSun Energy (Sell), a corn-based ethanol producer, is trading 32% above our replacement cost value-based $11, 12-month target price (corn and ethanol price volatility are key risks).