Valero Energy Corp (VLO, Financial) has recently experienced a daily gain of 2.32% and a 3-month gain of 27.01%. With an Earnings Per Share (EPS) of 29.03, it raises the question: is the stock Fairly Valued? This valuation analysis aims to provide an in-depth exploration of Valero Energy's intrinsic value. Let's dive into the details.
Company Introduction
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 has the capacity to produce 1.2 billion gallons per year of renewable diesel. Comparing the stock price to the GF Value, an estimation of fair value, allows for a comprehensive exploration of the company's value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page provides an overview of the fair value that the stock should be traded at. 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, its future return will likely be higher.
Valero Energy (VLO, Financial) appears to be fairly valued based on GuruFocus' valuation method. At its current price of $147.02 per share, Valero Energy stock appears to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's critical to review a company's financial strength before deciding whether to buy shares. Valero Energy has a cash-to-debt ratio of 0.45, which ranks worse than 51.7% of 1027 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Valero Energy's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in those that have demonstrated consistent profitability over the long term. Valero Energy has been profitable 9 years over the past 10 years. Its operating margin of 9.48% is better than 51.84% of 976 companies in the Oil & Gas industry. Overall, GuruFocus ranks Valero Energy's profitability as strong.
The 3-year average annual revenue growth of Valero Energy is 19.4%, which ranks better than 69.54% of 857 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 45.7%, which ranks better than 81.09% of 825 companies in the Oil & Gas industry.
ROIC vs 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. For the past 12 months, Valero Energy's return on invested capital is 28.86, and its cost of capital is 10.01.
Conclusion
In conclusion, the stock of Valero Energy (VLO, Financial) appears to be fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 81.09% of 825 companies in the Oil & Gas industry. To learn more about Valero Energy stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
