On Sunday, the U.S. national average came in at $5.01 per gallon of gasoline, according to the AAA, roughly two dollars up from the year-ago average of $3.07. Data also shows that there are almost 20 states where gas prices cost at least $5. GasBuddy pegged the average above $5 per gallon last week.
Increased seasonal demand amid the Russia-Ukraine war creating a tight supply, has ramped up spending at the pump. The war crisis has also exacerbated the already-existing supply shortage due to the pandemic-induced production slowdown. Analysts believe that lowering prices might not be simple. On top of it, Goldman Sachs Group Inc. (GS) has predicted crude oil prices to average $140 a barrel between July and September.
Given this scenario, we think refining stocks Valero Energy Corporation (VLO), CVR Energy, Inc. (CVI), HF Sinclair Corporation (DINO), and Exxon Mobil Corporation (XOM) might be ideal buys.
Valero Energy Corporation (VLO)
VLO operates internationally as a manufacturer and seller of transportation fuels and petrochemical products. Operating through the three broad segments of Refining; Renewable Diesel; and Ethanol, the company is involved in the oil and gas refining, marketing, and bulk selling activities.
In June 2022, VLO announced the reduction of its debt by approximately $300 million through the acquisition of $300 million of 4.00% Gulf Opportunity Zone Revenue Bonds Series 2010. This transaction, combined with previous transactions in the third and fourth quarters of 2021 and the first quarter of 2022, is said to have reduced the company’s debt by about $2.30 billion.
On April 28, VLO declared a quarterly dividend of $0.98 per share, which was payable to shareholders on June 7. This reflects upon the company’s ability to pay back its shareholders.
For the fiscal first quarter ended March 31, VLO’s revenues increased 85.2% year-over-year to $38.54 billion. Adjusted net income, attributable to VLO stockholders and adjusted earnings per common share, came in at $944 million and $2.31, both registering a considerable increase over their negative year-ago values.
Analysts expect VLO’s EPS to increase 1,150% year-over-year to $6.00 for the fiscal quarter ending June 2022. Likewise, Street expects its revenue to come in at $44.16 billion for the same quarter, indicating an improvement of 59.1% from the prior-year period. Moreover, VLO has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 45.8% over the past year and 58.1% year-to-date to close yesterday’s trading session at $118.74.
CVR Energy, Inc. (CVI)
CVI operates as a diversified holding company that primarily engages in petroleum refining and nitrogen fertilizer manufacturing. The company operates through its two broad segments of Petroleum and Nitrogen Fertilizer.
On May 2, CVI declared a dividend of 40 cents per share, which was payable to stockholders on May 23. This reflects upon the company’s ability to generate cash.
CVI’s net sales increased 62.2% year-over-year to $2.37 billion in the fiscal first quarter ended March 31. The company’s adjusted EBITDA improved 496.2% from the prior-year period to $155 million, while adjusted EPS came in at $0.02, up substantially from its negative year-ago value.
Street EPS estimate for the quarter ending September 2022 of $1.20 indicates a 600% year-over-year increase. Likewise, Street revenue estimate for the same period of $2.29 billion reflects a rise of 32.4% from the same period the prior year.
CVI’s stock has gained 87.4% over the past year and 118.4% year-to-date to close yesterday’s trading session at $36.72.
HF Sinclair Corporation (DINO)
DINO is an independent energy company that engages in the production and marketing of gasoline, jet fuel, diesel fuel, specialty lubricant products, and specialty chemicals. The company owns and operates refineries and sells its refined products.
On June 9, DINO declared the reinstatement of its regular quarterly dividend at an increased rate of $0.40 per share, which was payable to shareholders on June 2. The dividend increase reflects upon the company’s shareholder return ability.
On March 14, HollyFrontier Corporation (HFC) and Holly Energy Partners, L.P. (HEP) announced the establishment of DINO as the new parent holding company of HFC and HEP and also announced the completion of their acquisitions of Sinclair Oil Corporation and Sinclair Transportation Company, respectively from The Sinclair Companies.
DINO’s sales and other revenues increased 112.8% year-over-year to $7.46 billion in the fiscal first quarter ended March 31. Adjusted net income attributable to DINO stockholders and adjusted EPS stood at $175.64 million and $0.99, up substantially from their negative year-ago values.
Analysts expect DINO’s EPS to increase 239.1% year-over-year to $2.95 for the fiscal quarter ending June 2022. Likewise, Street expects its revenue to improve 122.1% from the prior-year period to $7.41 billion for the same period. In addition, DINO has topped consensus EPS estimates in three out of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 35.1% and 45.7% year-to-date to close yesterday’s trading session at $47.77.
Exxon Mobil Corporation (XOM)
XOM engages in the exploration and production of crude oil and natural gas in the United States and globally. The company operates through the broad segments of Upstream; Downstream; and Chemical. It also manufactures, trades, transports, and sells crude oil, natural gas, and petrochemicals.
On May 25, XOM announced its plan to increase shareholder value that, helps meet the need for lower greenhouse emissions and address climate change. Darren Woods, chairman, and the chief executive officer, stated, "Recent events have reminded us how globally connected energy markets are. They’ve also underscored the importance of our role in creating sustainable solutions that improve quality of life while supporting a lower- emissions future."
On May 19, XOM announced that it had signed an agreement to sell operated and non-operated Barnett Shale gas assets in Texas for $750 million with additional payments contingent on future natural gas prices. On May 3, the company announced that it had reached an agreement to sell its Romanian upstream affiliate, ExxonMobil Exploration and Production Romania, to Romgaz for more than $1 billion. The company intends to focus on advantaged assets in low-cost supply and bolster its upstream position.
For the fiscal first quarter ended March 31, XOM’s total revenues and other income increased 53% year-over-year to $90.50 billion. Net income attributable to XOM rose 100.7% from the prior-year quarter to $5.48 billion, while earnings per common share improved 100% from the same period the prior year to $1.28.
The consensus EPS estimate of $3.01 for the quarter ending June 2022 indicates a 173.6% year-over-year increase. Likewise, the consensus revenue estimate for the same quarter of $112.91 billion reflects an improvement of 66.7% from the prior-year period. XOM has beaten consensus EPS estimates in each of the trailing four quarters.
The stock has gained 42.6% over the past year and 49.4% year-to-date to close yesterday’s trading session at $91.39.
VLO shares were trading at $113.54 per share on Friday afternoon, down $5.20 (-4.38%). Year-to-date, VLO has gained 54.15%, versus a -22.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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