Valero Energy Corp (VLO, Financial) recently displayed a daily gain of 2.05% and a notable 3-month gain of 13.59%. With an Earnings Per Share (EPS) of 20.19, investors might wonder if the stock is modestly overvalued. This analysis delves into Valero Energy's valuation, encouraging a deeper understanding of its current market position.
Company Overview
Valero Energy, one of the largest independent refiners in the United States, operates 15 refineries with a combined throughput capacity of 3.2 million barrels per day across the US, Canada, and the UK. Additionally, it owns 12 ethanol plants and a 50% stake in Diamond Green Diesel. This comprehensive operational reach supports its significant market cap of $52.90 billion and sales of $140.10 billion. The company's current stock price is $161.75, juxtaposed against a GF Value of $131.91, suggesting a modest overvaluation.
Understanding GF Value
The GF Value is a proprietary measure reflecting the intrinsic value of a stock, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Valero Energy, the GF Value suggests the stock might be trading above its fair value, indicating potential overvaluation. This assessment aligns with the current price of $161.75 per share, which exceeds the GF Value of $131.91.
Given this modest overvaluation, the long-term return on Valero Energy's stock might lag behind its business growth.
Financial Strength and Stability
Investing in companies with robust financial health reduces the risk of capital loss. Valero Energy's financial strength is rated 8 out of 10 by GuruFocus, indicating a strong position. The company's cash-to-debt ratio stands at 0.45, which, although lower than some industry peers, supports a stable financial outlook. Understanding these metrics is crucial before making investment decisions.
Profitability and Growth Prospects
Valero Energy has demonstrated consistent profitability, with a strong operating margin of 6.78%. This level of profitability, coupled with a revenue of $140.10 billion and an EPS of 20.19, underpins its robust market position. Furthermore, the company's growth has been impressive, with a 3-year average annual revenue growth rate of 37%, significantly outpacing many peers in the Oil & Gas industry.
Value Creation Analysis
Comparing the Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) provides insight into value creation. Valero Energy's ROIC of 17.71% surpasses its WACC of 7.73%, indicating efficient capital use and value generation for shareholders.
Conclusion
While Valero Energy (VLO, Financial) appears modestly overvalued based on its GF Value, its strong financial health, profitability, and growth potential make it a noteworthy contender in the energy sector. For a deeper dive into Valero Energy's financials, visit its 30-Year Financials here.
To discover other high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
