Benzinga | Oct 1, 2020 12:51PM EDT

Goldman Sachs Downgrades Valero Energy, Sees Sharp Downside To 2021 Estimates

While there are concerns around global refining fundamentals exerting pressure on Valero Energy Corporation's (NYSE:VLO) margins, the company also faces balance sheet pressure and potential regulatory risks, according to Goldman Sachs.

The Valero Energy Analyst: Neil Mehta downgraded Valero Energy from Neutral to Sell and lowered the price target from $48 to $37.

The Valero Energy Takeaways: The outlook for Valero Energy's Renewable Diesel segment is favorable, but global refining fundamentals could exert pressure on the company's margins, given "capacity additions, unfavorable crude differentials and lower refining utilization rates," Mehta said in the downgrade note.

"We are 52% and 18% below FactSet consensus EPS for 2021 and 2022," the analyst said.

He further expressed concern around the sustainability of Valero Energy's dividend and the "risk of balance sheet pressure under our 2021 earnings scenario."

The company faces potential regulatory risk "in the context of existing Renewable Fuel Standard (RFS) mandates, as well as tax implications" if Democrat Joe Biden wins the presidential election, according to Goldman Sachs.

VLO Price Action: Shares of Valero Energy were down 7.57% at $40.04 at last check Thursday.