Peer Comparison: Where Do Valero Energy’s Valuations Stand?



Series overview

In the final part of this series, we’ll look at Valero Energy’s (VLO) valuation compared to its peers. Before proceeding with these valuations, let’s have a look at what have we reviewed in this series so far.

In this series, we have reviewed Valero Energy’s current position and outlook for the next quarter. We discussed Valero’s recent logistics growth activities. We looked at the company’s refining margin outlook and oil spread trends in 3Q17, as well as the Ethanol segment’s earnings expectations. We also evaluated Valero’s debt and liquidity situation.

We also considered analysts’ ratings for Valero and their estimates for its next dividend payment. We looked at Valero Energy’s (VLO) stock performance, moving average trends, price forecast, institutional ownership, and short interest changes.

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Valero’s valuations

Valero is now trading at a forward PE (price-to-earnings) ratio of 13.8x, below its peer average of 15.7x. Valero’s (VLO) peers Andeavor (ANDV) and PBF Energy (PBF) also traded below the peer average with forward PE ratios of 15.5x and 14.3x, respectively.

Also, VLO is currently trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] ratio of 6.1x, below the peer average of 7.0x. VLO’s peers are mostly trading above the average forward EV-to-EBITDA. PBF Energy (PBF) and CVR Refining (CVRR) trade below the average, like VLO.

However, refining stocks like Marathon Petroleum (MPC), HollyFrontier (HFC), and Phillips 66 (PSX) trade above peer averages on both valuation metrics.

Valero’s discounted valuations

Valero’s earnings are impacted by high compliance costs. VLO has incurred ~$403 million to purchase RINs (Renewable Identification Numbers) in 1H17. Similarly, in 2016, VLO incurred ~$750 million in RINs costs, around 21% of its operating margin. The cost is forecast to be $750 million–$850 million in 2017. Thus, this cost continually dents Valero’s earnings.

VLO is trading below its peer averages, presumably due to the RINs acquisition burden. Plus, RINs prices can be very volatile.

For more information on Wall Street analysts’ opinions on refining stocks, you can refer to Seven American Refiners: What the Analysts Think.


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