Valero Energy Corp (VLO, Financial) has seen a daily gain of 3.11% and a 3-month gain of 27.84%. With a robust Earnings Per Share (EPS) (EPS) of 29.03, the question arises: is the stock fairly valued? In this article, we provide a comprehensive valuation analysis of Valero Energy. So, let's dive in!
Introduction to Valero Energy Corp
Valero Energy Corp (VLO, Financial) is one of the largest independent refiners in the United States. It operates 15 refineries with a total throughput capacity of 3.2 million barrels a day in the United States, Canada, and the United Kingdom. Valero 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 can produce 1.2 billion gallons per year of renewable diesel.
The current stock price of Valero Energy is $139.06, which we will compare with the GF Value, an estimation of its fair value. This comparison will provide a deeper understanding of the company's value. Here is the income breakdown of Valero Energy:
Understanding the GF Value
The GF Value is a proprietary tool that calculates the intrinsic value of a stock. It uses historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line gives an overview of the fair value that the stock should ideally be traded at.
According to the GF Value, Valero Energy (VLO, Financial) appears to be fairly valued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on past business growth, and analyst estimates of future business performance. If the share price significantly deviates from the GF Value Line, it may indicate the stock is overvalued or undervalued. However, at its current price of $139.06 per share, Valero Energy's stock appears to be fairly valued.
As Valero Energy is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength of Valero Energy
Assessing the financial strength of a company before buying its stock is crucial. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great indicators of a company's financial strength. Valero Energy has a cash-to-debt ratio of 0.45, which is lower than 53.85% of companies in the Oil & Gas industry. However, its overall financial strength is 8 out of 10, indicating strong financial health.
Here is the debt and cash of Valero Energy over the past years:
Profitability and Growth of Valero Energy
Companies that have been consistently profitable over the long term offer less risk for investors. Valero Energy has been profitable 9 out of the past 10 years. Over the past twelve months, the company had a revenue of $157.10 billion and Earnings Per Share (EPS) (EPS) of $29.03. Its operating margin is 9.48%, which ranks better than 51.08% of companies in the Oil & Gas industry. Overall, the profitability of Valero Energy is ranked 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. Valero Energy's 3-year average revenue growth rate is better than 69.67% of companies in the Oil & Gas industry. Its 3-year average EBITDA growth rate is 45.7%, which ranks better than 81.5% of companies in the Oil & Gas industry. This indicates strong growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) provides another perspective on profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, ROIC should be higher than the WACC. For the past 12 months, Valero Energy's ROIC is 28.86, and its WACC is 9.38.
Here is the historical ROIC vs WACC comparison of Valero Energy:
Conclusion
In conclusion, the stock of Valero Energy Corp (VLO, Financial) appears to be fairly valued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 81.5% 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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