Valero Energy (VLO) Following Record Refining Margins Is The Stock Already Fully Valued
Valero Energy (VLO) is back in focus after its board affirmed a regular quarterly cash dividend of $1.20 per share, a decision arriving as refiners benefit from record fuel refining margins.
See our latest analysis for Valero Energy.
The recent dividend announcement comes as Valero Energy’s share price has strong momentum, with a 30 day share price return of 29.14% and an 87.31% year to date share price return. This has contributed to a 117.29% 1 year total shareholder return and a very large 5 year total shareholder return that reflects how investors have reacted to supportive refining conditions over time.
If Valero’s run has you thinking about other opportunities in energy infrastructure, this could be a good moment to widen your search with 33 power grid technology and infrastructure stocks
Valero Energy’s surge and rich refining backdrop have bulls arguing it deserves a premium, while bears point to revenue and net income declines and a price above analyst targets. Which side does the valuation actually support next?
Most Popular Narrative: 16% Overvalued
Valero Energy last closed at $309.65, compared with a widely followed fair value narrative of about $267.83 per share, which frames today’s premium and the debate around it.
The analysts have a consensus price target of $267.83 for Valero Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $312.0, and the most bearish reporting a price target of just $190.0.
Want to see what is baked into that gap between $190 and the top of the range? The narrative leans on shifting margins, revenue pressure and a higher future earnings multiple. Curious how those ingredients combine into one fair value path for Valero Energy?
Result: Fair Value of $267.83 (OVERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, the narrative around Valero Energy can shift quickly if asset impairments or higher operating and regulatory costs squeeze margins more than analysts currently factor in.
Find out about the key risks to this Valero Energy narrative.
Another View: Valero Energy Through a Cash Flow Lens
While the analyst narrative suggests Valero Energy trades above a $267.83 fair value, the SWS DCF model points in the opposite direction. On this view, VLO at $309.65 sits below an estimated future cash flow value of $405.27, which frames the current price as undervalued. Which signal do you trust when the story and the cash flows point in different directions?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Valero Energy for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 47 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
Seeing both enthusiasm and caution around Valero Energy, this is a good time to act quickly, review the data directly, and weigh the balance of risks and potential rewards yourself with 3 key rewards and 2 important warning signs
Looking for more investment ideas beyond Valero Energy?
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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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