Valero Energy Corp (VLO, Financial) has seen a daily loss of -3.34% and a three-month gain of 19.02%. With an Earnings Per Share (EPS) of 29.03, is the stock fairly valued? This article aims to answer this question by providing a comprehensive valuation analysis. Read on to gain valuable insights into Valero Energy's intrinsic value.
About Valero Energy Corp (VLO, Financial)
Valero Energy 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.
Trading at $131.94 per share with a market cap of $46.60 billion, Valero Energy's stock price is slightly below its GF Value of $134.07, indicating a fair valuation. This sets the stage for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
If the stock price significantly exceeds the GF Value Line, the stock is likely overvalued, and its future returns may be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, and its future returns will likely be higher. Based on this analysis, Valero Energy appears to be fairly valued at its current price.
Since Valero Energy is fairly valued, the long-term return of its stock is likely to be close to its business growth rate.
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Financial Strength of Valero Energy
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must research and review a company's financial strength before purchasing shares. Valero Energy's cash-to-debt ratio of 0.45 ranks worse than 53.65% of companies in the Oil & Gas industry. However, the overall financial strength of Valero Energy is 8 out of 10, indicating strong financial health.
Profitability and Growth of Valero Energy
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. 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) of $29.03. Its operating margin is 9.48%, which ranks better than 50.93% of companies in the Oil & Gas industry. Overall, GuruFocus ranks the profitability of Valero Energy at 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 69.71% of companies in the Oil & Gas industry. Its 3-year average EBITDA growth rate is 45.7%, which ranks better than 81.4% of companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Valero Energy's ROIC was 28.86, while its WACC came in at 9.38.
Conclusion
Overall, Valero Energy (VLO, Financial) stock appears to be fairly valued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 81.4% 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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