Quick Update for VLO Investors

Valero Energy shares fell by -2.6% during the day's afternoon session, and are now trading at a price of $130.07. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.

Valero Energy Is Fairly Priced at Current Levels:

Valero Energy Corporation manufactures, markets, and sells transportation fuels and petrochemical products in the United States, Canada, the United Kingdom, Ireland, Latin America, and internationally. The company belongs to the Energy sector, which has an average price to earnings (P/E) ratio of 7.54 and an average price to book (P/B) ratio of 1.68. In contrast, Valero Energy has a trailing 12 month P/E ratio of 3.7 and a P/B ratio of 1.78.

When we divide Valero Energy's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -0.26. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.

Exceptional EPS Growth at the Expense of a Highly Leveraged Balance Sheet:

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $108,324 $64,912 $113,977 $176,383
Gross Margins 4.4% -1.2% 2.7% 9.5%
Operating Margins 3.5% -2.4% 1.9% 8.9%
Net Margins 2.24% -2.19% 0.82% 6.54%
Net Income (MM) $2,422 -$1,421 $930 $11,528
Net Interest Expense (MM) -$454 -$563 -$603 -$562
Depreciation & Amort. (MM) -$2,255 -$2,351 -$2,405 -$2,473
Earnings Per Share $5.84 -$3.5 $2.27 $35.12
EPS Growth n/a -159.93% 164.86% 1447.14%
Diluted Shares (MM) 414 407 407 362
Free Cash Flow (MM) $315 $1,018 $439 $661
Capital Expenditures (MM) -$1,997 -$1,788 -$1,665 -$1,681
Net Current Assets (MM) -$12,359 -$16,288 -$16,906 -$11,381
Current Ratio 1.44 1.71 1.26 1.38
Long Term Debt (MM) $9,178 $13,954 $10,840 $8,380
Net Debt / EBITDA 1.27 19.74 1.98 0.27

Valero Energy has exceptional EPS growth, growing revenues and decreasing reinvestment in the business, and generally positive cash flows. However, Valero Energy has slimmer gross margins than its peers, weak operating margins with a positive growth rate, and a highly leveraged balance sheet. Finally, we note that Valero Energy has just enough current assets to cover current liabilities.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.