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Are Valero’s Valuations Attractively Placed Compared to Its Peers?

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Valero’s peer comparison

In the previous part of the series, we looked at Valero Energy’s (VLO) historical valuation trends. In this part, we’ll look at its forward valuations compared to those of its peers.

Before we proceed with a peer comparison, let’s consider the market caps (capitalizations) of American refiners. Valero’s (VLO) market cap stands at ~$25 billion. Marathon Petroleum (MPC) and Tesoro (TSO) have lower market caps of ~$19 billion and ~$9 billion, respectively. Phillips 66 (PSX) has a market cap of ~$42 billion.

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Valero’s valuations

Valero Energy (VLO) is currently trading at a two-year forward PE (price-to-earnings) ratio of 8x. That’s below the peer average of 8.9x. Marathon Petroleum (MPC), HollyFrontier (HFC), PBF Energy (PBF), and CVR Refining (CVRR) also trade below the average forward PE.

Valero is currently trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) of 4.5x. That’s below its peer average of 5.7x. Most of VLO’s peers are trading closer to the average forward EV-to-EBITDA. But Marathon Petroleum (MPC), Phillips 66 (PSX), Western Refining (WNR), and Northern Tier Energy (NTI) are trading above the average forward EV-to-EBITDA.

Valero has a comfortable leverage position and a sound cash flow situation. It has also delivered shareholder returns in the form of dividends and buybacks. Valero is trading lower than its peers. This places Valero in a likely attractive valuation spot. No wonder it’s one of only two American independent refiners that have no “sell” ratings.

For exposure to refining and marketing sector stocks, you can consider the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). It has ~16% exposure to the sector.

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