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

To: Dennis Roth who wrote (262)	3/25/2008 9:17:20 AM
From: Dennis Roth	Read Replies (2) \| Respond to of 299

Valero Energy Corp. (VLO): Buy any dip related to 1Q noise; gas crack rebound key to shares - Goldman Sachs - March 25, 2008 What's changed Valero Energy announced 1Q 2008 EPS guidance of $0.10-$0.35, with unplanned downtime resulting in an opportunity cost of $400 million to throughput margins, or just under $0.50 per share (after-tax). The new 1Q guidance was below our previous $0.65 estimate and the official First Call consensus of $0.91. However, most analysts that had recently updated estimates were between $0.60-$0.75, making the shortfall somewhat less dramatic than the headline implies. Furthermore, the opportunity cost of unplanned downtime was meaningful and accounts for the bulk of the gap versus our previous estimate. We have lowered our 1Q 2008 EPS to $0.20, but made no changes to 2Q-4Q 2008 or future years. Implications While the 1Q shortfall is unfortunate, it does not change our bullish outlook for the shares and we reiterate our Conviction Buy rating. The key to Valero’s shares remains a further rebound in gasoline crack spreads, which continue to rally off of lows seen early last week. Given the guidance shortfall, on a short-term trading basis there is probably now a greater urgency for Wednesday’s DOE gasoline inventory data to show further improvement. Regardless, we continue to believe crack spreads are very inexpensive relative to crude oil prices and the partial re-coupling we expect in 2008 and full re-coupling forecast for 2009 points to material upside for the shares of refining equities, including Valero. Valuation There is no change to our $69, 12-month target price, which is based on asset value, P/E and cash flow valuation analyses. Key risks Key risk is sustained lower refining margins.