Have Analysts Started Warming Up to Valero Energy?

Analysts’ ratings for Valero

Analysts’ ratings show that 12 out of the 18 analysts covering Valero Energy (VLO) have rated it as a “buy.” The remaining six have rated Valero as a “hold.” There are no “sell” ratings on VLO.

Have Analysts Started Warming Up to Valero Energy?

In the past year, the number of “buy” ratings for Valero has risen. In August 2017, 57% of analysts rated VLO as a “buy,” and that number has risen to 67% in August. In the same period, Valero’s mean target price has risen 82% to $132 per share. Valero’s mean target price implies a 15% rise from its current level.

Valero’s peers Marathon Petroleum (MPC), Phillips 66 (PSX), and Andeavor (ANDV) have been rated as “buys” by 93%, 41%, and 21% of analysts, respectively. Other players Delek Us Holdings (DK), PBF Energy (PBF), and HollyFrontier (HFC) have been rated as “buys” by 93%, 47%, and 31% of analysts, respectively.

Why are analysts becoming positive on Valero?

Valero has consistently borne RIN (renewable identification number) expenses, which is presumably the reason why the stock has “hold” ratings. However, due to softening RIN prices, VLO saw a $64 million year-over-year fall in its RIN costs to $337 million in the first half of 2018. VLO expects its RIN costs to stand between $500 million and $600 million in 2018—a favorable development that points to cost savings and better earnings.

Valero is also steadily progressing on its growth path with a focus on diversifying and enhancing its earnings. Several of the company’s projects show that it’s all set to achieve the earnings growth it has targeted. We’ll consider this in the next article.

Moreover, Valero’s robust financials denoted by its low debt ratio (total debt-to-capital ratio) and comfortable liquidity position could be the reason for the higher number of “buy” ratings on the stock. We’ll discuss its debt and cash flow position later in the series.

Overall, lower RIN costs, growth activities, and robust financials could be a few of the reasons for the rise in the number of “buy” ratings on VLO.