Valero Energy Corp (VLO, Financial) made a daily gain of 2.6%, marking a 27.16% increase over the past three months. With an Earnings Per Share (EPS) at 29.03, the question arises: Is the stock fairly valued? This article will delve into a comprehensive valuation analysis of Valero Energy, providing insights into its business operations, financial strength, profitability, and growth potential.
Company Overview
Valero Energy is one of the largest independent refiners in the United States, operating 15 refineries with a total throughput capacity of 3.2 million barrels a day in the United States, Canada, and the United Kingdom. The company also owns 12 ethanol plants with a capacity of 1.6 billion gallons of ethanol a year and holds a 50% stake in Diamond Green Diesel, which produces 1.2 billion gallons per year of renewable diesel. With a market cap of $48.90 billion and sales reaching $157.10 billion, Valero Energy's stock price stands at $138.37, closely aligning with its GF Value of $134.05.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, the stock may be undervalued, indicating higher future returns.
For Valero Energy (VLO, Financial), the GF Value suggests that the stock is fairly valued. Given that the stock's price is closely aligned with the GF Value Line, its long-term return is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to assess a company's financial strength before purchasing its shares. Valero Energy's cash-to-debt ratio is 0.45, ranking lower than 53.94% of companies in the Oil & Gas industry. However, GuruFocus ranks Valero Energy's financial strength as 8 out of 10, indicating a strong balance sheet.
Profitability and Growth
Profitable companies, especially those demonstrating consistent profitability over the long term, pose less risk to investors. Valero Energy has been profitable 9 out of the past 10 years. With a revenue of $157.10 billion and an Earnings Per Share (EPS) of $29.03 in the past twelve months, its operating margin is 9.48%, ranking better than 50.98% of companies in the Oil & Gas industry. Overall, GuruFocus ranks Valero Energy's profitability at 8 out of 10.
Valero Energy's growth is another crucial factor in its valuation. The company's average annual revenue growth is 19.4%, ranking better than 69.64% of companies in the Oil & Gas industry. Its 3-year average EBITDA growth is 45.7%, outperforming 81.48% of competitors in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) provides insights into its profitability. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the average rate a company is expected to pay to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, Valero Energy's ROIC is 28.86, and its WACC is 9.31.
Conclusion
In conclusion, Valero Energy (VLO, Financial) is fairly valued, demonstrating strong financial condition and profitability. Its growth ranks better than 81.48% of companies in the Oil & Gas industry. To learn more about Valero Energy stock, you can check out its 30-Year Financials here.
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