Uncover the Secrets of Valero Energy (VLO)

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.

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.