Why Valero’s Valuations Switched from Discount to Premium


Mar. 7 2018, Updated 9:01 a.m. ET

Series overview

In this last article in the series, we’ll look at Valero Energy’s (VLO) valuation compared to its peers. In this series, we have studied Valero Energy’s market performance. We also discussed Valero Energy’s (VLO) stock performance, moving average trends, and price forecasts. 

We also reviewed institutional ownership positions and short interest changes in VLO stock. Now, let’s look at Valero’s valuations.

Article continues below advertisement

Valero’s valuations

Valero (VLO) is currently trading at a forward PE (price-to-earnings) ratio of 12.4x, which is above its peer average of 11.4x. Among Valero’s (VLO) peers, Andeavor (ANDV), PBF Energy (PBF), and CVR Refining (CVRR) trade below the peer average with forward PE ratios of 9.0x, 9.7x, and 8.4x, respectively.

VLO is currently trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] ratio of 6.7x, which is above the peer average of 6.5x. 

Although Valero’s peers are mostly trading above the average forward EV-to-EBITDA multiple, Delek US Holdings (DK), PBF Energy (PBF), and CVR Refining (CVRR) trade below the average.

However, Marathon Petroleum (MPC), HollyFrontier (HFC), and Phillips 66 (PSX) trade above peer averages with respect to both valuation ratios.

What’s behind the premium valuations for Valero

Valero’s valuations have shifted from discount in the recent past to the current premium level. Valero (VLO) has satisfactory debt and cash flow positions relative to its peers. However, these positions bear the burden of high compliance costs. The purchase of RINs (Renewable Identification Numbers) quarter-over-quarter is denting the company’s refining earnings.

VLO has incurred ~$942.0 million to purchase RINs in 2017, which is ~26.0% of its operating earnings. In 2016, VLO incurred ~$750.0 million for its RINs obligations. VLO expects this cost to reach $750.0 million–$850.0 million in 2018. So, this cost is continuously impacting the company’s earnings.

However, RINs prices have softened in 1Q18. So, the possible expectation of lower RINs expenses in 1Q18 is boosting Valero’s valuations. The benefits associated with tax reforms in the US could support VLO’s higher valuations.


More From Market Realist

  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market RealistLogo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.