How Valero’s Valuations Have Trended Compared to Historical Averages



Valero’s valuations

Valero Energy (VLO) has traded at an average PE (price-to-earnings) ratio of 7.9x from 3Q14 to 3Q16. The ratio measures the company’s price per share as a multiple of earnings per share. So usually, everything else being equal, the higher the ratio, the more expensive the stock.

Refining margins and cracks have been quite volatile in the past few quarters. Usually, everything else being equal, favorable refining margins boost the earnings, leading to a fall in valuations. On the other hand, pressurized margins dent the earnings, leading to a rise in valuations. Valero’s PE also witnessed this rollercoaster ride between 3Q14 and 3Q16. Valero saw a high of 9.1x and a low of 7.2x in the stated period. In 3Q16, Valero traded at a PE 8.6x, which is above its historical average.

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Valero’s EV to EBITDA and price to cashflows

From 3Q14 to 3Q16, VLO’s EV to EBITDA and price to cashflow ratios stood at an average of 4.1x and 5.5x, respectively. In 1Q14, EV to EBITDA and price to cashflows saw highs of 4.3x and 7.7x, respectively. Both these ratios also witnessed a seesaw performance like the PE ratio discussed above.

In 3Q16, Valero (VLO) trades at an EV to EBITDA and price to cashflows of 4.0x and 5.1x, respectively, lower than historical averages.

Refiners like HollyFrontier (HFC), Delek US Holdings (DK), and Western Refining (WNR) have also witnessed unstable earnings in the past few quarters. If you’re looking for exposure to refining sector stocks, you can consider the iShares Global Energy ETF (IXC). The ETF has ~5% exposure to the sector.


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