Valero Energy ‘Best Positioned,’ Morgan Stanley Says

Valero Energy’s (VLO) performance has been anything but refined recently, as the refiner has dropped 3.2% during the best three month. Morgan Stanley’s Evan Calio and Manav Gupta, however, think it’s time for a Valero turnaround. They explain why:

Bloomberg

In the last 3 months, Valero Energy has underperformed its closest peers Marathon Petroleum (MPC) and Phillips 66 (PSX) by 5% and 7.1%, respectively. While Marathon Petroleum, Phillips 66 and ExxonMobil (XOM) have major planned turnaround scheduled for 4Q14, Valero Energy will be operating at a meaningfully higher utilization rate and is best positioned to capture any widening Gulf Coast differentials resulting from high turnaround activity. In addition to 4Q14 earnings revision upside, we estimate Valero Energy has $800MM in MLP-able EBITDA (including organic growth projects) which can be dropped into Valero Energy Partners (VLP) in the foreseeable future. Assuming a 10.0x EBITDA multiple, we estimate Valero Energy can unlock ~$19.6/shr (drop-down proceeds + GP valuation + LP valuation) in value if it chooses to drop these assets into Valero Energy Partners in the 3 years. For Valero Energy, higher pace of drops could provide a much higher EVA strategy than cutting capex.

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Shares of Valero Energy have gained 2.2% to $53.37 at 2:19 p.m. today, while Phillips 66 has gained 2.1% to $85.52, Marathon Petroleum has advanced 1.3% to $89.77 and ExxonMobil has ticked up 0.3% to $99.36. Valero Energy Partners is up 2.1% at $49.16.