Is It Too Late To Consider Valero Energy After Its Strong Multi Year Price Rally?
- Wondering if Valero Energy is still a smart buy after its big run, or if most of the easy money has already been made? This breakdown will help you decide whether the current price reflects its true value.
- Despite a recent pullback, with the stock down 3.4% over the last week and 5.2% over the past month, Valero is still up 36.7% year to date and 34.4% over the last year, on top of a 268.7% gain over five years.
- Those moves have been shaped by ongoing optimism around refined product demand and crack spreads, alongside broader energy sector rotations between defensive and cyclical names. At the same time, investor focus on capital returns and disciplined spending has helped support sentiment even as short term volatility picks up.
- Right now, Valero scores just 2/6 on our valuation checks, suggesting it only looks undervalued on a couple of metrics. Next, we will unpack what different valuation methods are saying about the stock and introduce a more intuitive way to judge value by the end of the article.
Valero Energy scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: Valero Energy Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow model estimates what a business is worth today by projecting its future cash flows and then discounting those back to the present.
For Valero Energy, the latest twelve months Free Cash Flow is about $4.0 billion. Analysts provide detailed forecasts for the next few years, and beyond that Simply Wall St extrapolates trends, resulting in projected Free Cash Flow of roughly $4.1 billion by 2035. These projections are run through a 2 Stage Free Cash Flow to Equity model to reflect both nearer term expectations and a more mature steady state.
On this basis, the estimated intrinsic value for Valero comes out at about $279.60 per share. Compared with the current market price, this implies the stock is trading at roughly a 39.8% discount to its DCF based fair value.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Valero Energy is undervalued by 39.8%. Track this in your watchlist or portfolio, or discover 907 more undervalued stocks based on cash flows.
Approach 2: Valero Energy Price vs Earnings
For profitable companies like Valero, the price to earnings multiple is a straightforward way to gauge how much investors are willing to pay for each dollar of earnings. A higher PE ratio can be justified when a business has stronger growth prospects or lower perceived risk. In contrast, slower growing or more cyclical companies usually trade on lower, more conservative multiples.
Valero currently trades on a PE of 34.43x, which is well above both the Oil and Gas industry average of about 13.28x and the 26.47x average of its peers. To refine this comparison, Simply Wall St calculates a proprietary Fair Ratio of 23.22x, which reflects what Valero’s PE should be given its earnings growth outlook, profitability, industry positioning, market cap and specific risks.
This Fair Ratio is more informative than a simple peer or industry comparison because it adjusts for the fact that not all oil refiners share the same margin profile, growth runway or risk exposure. Comparing Valero’s current 34.43x to the Fair Ratio of 23.22x suggests the market is paying a meaningful premium relative to what these fundamentals would normally imply.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your Valero Energy Narrative
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple framework that lets you attach a story, your view on Valero’s future revenues, earnings and margins, to the numbers that ultimately drive its fair value.
A Narrative on Simply Wall St links three things together: what you think is happening in the business, how that should translate into a financial forecast, and what fair value that forecast implies, so you can directly compare your view against the current share price and decide whether it looks like a buy, hold, or sell.
These Narratives are available to everyone on the Simply Wall St Community page, where millions of investors share and refine their views. Each Narrative automatically updates when new information arrives, such as earnings results, major news, or changes to key assumptions.
For example, one bullish Valero Narrative might lean on resilient margins, capital returns and a higher fair value closer to the top analyst target of about $181. In contrast, a more cautious Narrative could emphasize regulatory risk, weaker demand and a lower fair value nearer $133, giving you a clear, dynamic range of outcomes to weigh against today’s price.
Do you think there's more to the story for Valero Energy? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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