Valero Energy Corp (VLO, Financial) experienced a daily loss of -2.19%, with a 3-month gain of 20.01%. With an Earnings Per Share (EPS) of 29.03, the question arises: Is this stock fairly valued? To answer this, we delve into a comprehensive valuation analysis. We encourage you to read on to gain a deeper understanding of Valero Energy's intrinsic value.
Company Overview
Valero Energy Corp is one of the largest independent refiners in the United States. The company 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 capacity of 1.6 billion gallons of ethanol a year and holds a 50% stake in Diamond Green Diesel, which has capacity to produce 1.2 billion gallons per year of renewable diesel. With a current stock price of $130.66 and a GF Value of $133.96, Valero Energy appears to be fairly valued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal 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. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, Valero Energy Corp (VLO, Financial) appears to be fairly valued. The stock's current price of $130.66 per share and the market cap of $46.10 billion suggest that Valero Energy's stock is trading at its fair value. 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.
Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Valero Energy has a cash-to-debt ratio of 0.45, which is worse than 53.05% of 1016 companies in the Oil & Gas industry. GuruFocus ranks the overall financial strength of Valero Energy at 8 out of 10, which indicates that the financial strength of Valero Energy is strong.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Valero Energy has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $157.10 billion and Earnings Per Share (EPS) of $29.03. Its operating margin of 9.48% better than 51.24% of 968 companies in the Oil & Gas industry. Overall, GuruFocus ranks Valero Energy's profitability as strong.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Valero Energy's 3-year average revenue growth rate is better than 69.64% of 853 companies in the Oil & Gas industry. Valero Energy's 3-year average EBITDA growth rate is 45.7%, which ranks better than 81.36% of 826 companies in the Oil & Gas industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Valero Energy's ROIC is 28.86 while its WACC came in at 9.4.
Conclusion
Overall, Valero Energy Corp (VLO, Financial) stock appears to be fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 81.36% of 826 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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