Pumping Profits at Valero Energy

11/12/2015 7:00 am EST


Leo Fasciocco

Investment Columnist and Publisher, Ticker Tape Digest

Our latest featured breakout stock—a small-cap firm with $198 million in annual revenues—operates crude oil and refined petroleum product pipelines and terminals, explains Leo Fasciocco, editor of Ticker Tape Digest.

Valero Energy Partners LP (VLP), based in San Antonio, came public in late 2013, with the stock trading at $28. The shares climbed sharply to its all time peak of $56.89.

The stock then pulled back and trended lower touching 35 in late 2014. It rallied back to $55 and that has turned out to be the key upside resistance area.

VLP's stock is in a ten-month flat base. The stock has been meeting clear resistance around $55. With strong earnings coming the next two quarters, we see good chances for an upside breakout.

The stock's momentum indicator is solidly bullish and the accumulation and distribution line is now working higher and is bullish.

VLP is poised to show strong quarterly earnings. Net for the upcoming fourth quarter is expected to jump 89% to 61 cents a share from 32 cents a year ago.

The highest estimate on the Street is at 69 cents a share. We see chances for an upside earnings surprise. VLP topped the consensus estimate three out of the past four quarters.

Overall, profits for 2015 are expected to surge 101% to $2.03 a share from $1.01 a year ago.

Turning to 2016, the Street projects a 24% rise in net to $2.52 a share from the anticipated $2.03 this year. The stock sells with a P/E ratio of 24. We see that as reasonable.

The largest fund buyer recently was MainGate MLP A Fund (IMLPX), which purchased 30,700 shares. The largest fund holder is the Baron Small Cap Retail Fund (BSCFX) with a 1.7% stake.

We suggest accumulation of a partial stake in VLP with further buying to be done on a breakout over $54.45.  We are then targeting VLP for a move to $64 after a breakout.

Overall, we rate VLP as a good intermediate-term play provided earnings meet expectations. The stock is most suitable for a conservative investor.

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