It's been a great morning session for Valero Energy investors, who saw their shares rise 1.7% to a price of $128.16 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
Valero Energy Is Currently Undervalued:
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 8.53 and an average price to book (P/B) ratio of 1.78. In contrast, Valero Energy has a trailing 12 month P/E ratio of 4.4 and a P/B ratio of 1.68.
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 -0.28. 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.
The Business Has Weak Operating Margins:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $117,033 | $108,324 | $64,912 | $113,977 | $176,383 | $151,098 |
| Revenue Growth | n/a | -7.44% | -40.08% | 75.59% | 54.75% | -14.34% |
| Operating Margins | 4% | 4% | -2% | 2% | 9% | 10% |
| Net Margins | 3% | 2% | -2% | 1% | 7% | 7% |
| Net Income (MM) | $3,122 | $2,422 | -$1,421 | $930 | $11,528 | $10,746 |
| Net Interest Expense (MM) | $470 | $454 | $563 | $603 | $562 | $580 |
| Depreciation & Amort. (MM) | $52 | $53 | $48 | $47 | $45 | $43 |
| Earnings Per Share | $7.29 | $5.84 | -$3.5 | $2.27 | $29.04 | $29.25 |
| EPS Growth | n/a | -19.89% | -159.93% | 164.86% | 1179.3% | 0.72% |
| Diluted Shares (MM) | 428 | 414 | 407 | 407 | 396 | 349 |
| Free Cash Flow (MM) | $3,456 | $5,531 | -$66 | $5,859 | $12,574 | $12,086 |
| Current Ratio | 1.65 | 1.44 | 1.71 | 1.26 | 1.38 | 1.51 |
| Total Debt (MM) | $9,109 | $9,672 | $14,677 | $13,870 | $11,635 | $11,441 |
| Net Debt / EBITDA | 1.33 | 1.82 | -7.42 | 4.48 | 0.43 | 0.38 |
Valero Energy has growing revenues and no capital expenditures and exceptional EPS growth. Additionally, the company's financial statements display positive cash flows and healthy leverage. However, the firm has weak operating margins with a positive growth rate. Finally, we note that Valero Energy has just enough current assets to cover current liabilities.
