VLO’s implied gain
In the previous article, we looked at Marathon Petroleum (MPC), which has the second-highest implied gain among its peers based on Wall Street analysts’ mean target price.
Now let’s review the stock that’s expected to post the third-highest gain: Valero Energy (VLO).
Valero is an American refining company with refining, midstream, and ethanol business segments. VLO ranks third with an expected gain of 22% based on its target price. Also, its implied gains have been strengthening in the past couple of quarters likely due to weakening RIN (renewable identification number) prices. The stock has risen 51% in the past year. Wall Street analysts’ mean target price for Valero has risen 83% in the same period.
VLO’s earnings growth, valuation, and dividend yield
Valero’s earnings have improved in the past couple of quarters likely due to a decline in RIN prices. RIN costs dent VLO’s refining earnings sharply. Weaker RIN prices now mean lower RIN expenses for VLO in its next earnings release. Also, in the second quarter, Valero’s RIN expenses fell year-over-year. For more information, read Have Analysts Started Warming Up to Valero Energy? In the second quarter, VLO’s earnings exceeded Wall Street analysts’ consensus estimate.
Wall Street analysts expect VLO’s EPS to rise 34% to $6.7 in 2018. In the first half of 2018, VLO’s adjusted EPS stood at $3.2. VLO is trading at a forward PE of 11.7x, above the peer average of 10.8x.
Further, Valero has consistently returned wealth to shareholders in the form of dividends and share buybacks. In the second quarter, Valero returned $672 million to shareholders, of which $345 million went toward dividend payments. VLO’s current dividend yield stands at 2.9%, above the peer average of 2.4%.
Overall, VLO has the third-highest implied gain, a decent growth expectation, and an above-average dividend yield.