With a daily loss of -3.65%, a 3-month gain of 14.87%, and an Earnings Per Share (EPS) of 29.03, Valero Energy Corp (VLO, Financial) is capturing the attention of investors. But the question remains: Is the stock fairly valued? This article provides a detailed valuation analysis of Valero Energy. Read on to discover insights that could guide your investment decisions.
Company Introduction
Valero Energy Corp (VLO, Financial) 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 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 $133.06 and a GF Value of $132.95, Valero Energy appears to be fairly valued. The following sections delve deeper into the company's value.
Understanding the GF Value
The GF Value is an estimation of a stock's intrinsic value, 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 represents the fair trading value of a stock. If the stock price is significantly above the GF Value Line, it's overvalued and its future return is likely to be poor. Conversely, if it's significantly below the GF Value Line, its future return will likely be higher.
Valero Energy (VLO, Financial)'s stock appears to be fairly valued according to the GF Value calculation. At its current price of $133.06 per share, Valero Energy has a market cap of $47 billion. As the stock is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Valero Energy has a cash-to-debt ratio of 0.45, which ranks worse than 51.66% of 1026 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
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Valero Energy has been profitable 9 over 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 51.89% of 979 companies in the Oil & Gas industry. Overall, the profitability of Valero Energy is ranked 8 out of 10, indicating strong profitability.
Growth is one of the most important factors in the valuation of a company. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Valero Energy is 19.4%, which ranks better than 69.3% of 860 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 45.7%, which ranks better than 80.99% 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 10.27.
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 80.99% 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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