Wednesday, June 3, 2009

Valero guides it a buy?

AlphaNinja - Refiner Valero drops a BOMB on the street - sees a loss of 50cents per share while the street had been expecting a profit of about 75cents. This brings full-year earnings estimates down to about a dollar versus 2.40 previously expected.

from the release:

"The company’s second quarter 2009 results have been adversely affected by extended downtime at its Delaware City and McKee refineries and by the continuation of weak sour crude oil discounts and lower diesel margins."

In addition to the bad earnings news, the company is selling common stock at these depressed levels, never a good sign. The dilution will be about 8-9% of the common float, depending on the underwriters' over-allotment. That's not a worry to AlphaNinja, as the stock is down so much that I think its baked into the price. The important thing here is what happens going forward, and what kind of margins can the company return to? It's mix of products has been SLAMMED by lower selling prices and higher commodity (cost of goods) prices. Illustrated here:

Is Valero biting off more than it can chew, with its recent purchases of ethanol plants, and its possible future plans for more acquisitions? One thing is for certain - they're extremely ambitious.

"In the last three months, the company has acquired seven ethanol plants and a site currently under development from VeraSun Energy Corporation for $477 million, excluding working capital, and announced its pending acquisition of The Dow Chemical Company’s 45% interest in Total Raffinaderij Nederland N.V. (TRN), which owns a crude oil refinery in The Netherlands, for $600 million, excluding working capital. The company also expects its total capital expenditures in 2009 to be approximately $2.5 billion, of which approximately $1 billion is for strategic projects.

“Including the two acquisitions and our strategic capital projects, we expect to invest roughly $2 billion in growth investments this year,” said Bill Klesse, Valero’s Chairman of the Board and Chief Executive Officer. “Combining the $1 billion debt issuance in March with the 40 million common share offering announced today, we are able to continue to make strategic investments, while maintaining our strong balance sheet.”

(Disclosure - AlphaNinja has no position in VLO, but may own some by the end of the day)

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