Valero Energy’s Higher Implied Gains and Dividend Yield


Dec. 18 2018, Updated 11:45 a.m. ET

Valero Energy’s implied gains

In the previous part, we reviewed Marathon Petroleum (MPC), which has the highest implied gains of 67% based on Wall Street analysts’ mean target price. In this part, we’ll discuss the stock that’s expected to post the second-highest gains—Valero Energy (VLO).

Valero Energy ranks second with 60% implied gains based on its target price. The implied gains have widened in the past few months due to the lower stock price. The stock has fallen 18% in the past year. During the same period, analysts’ mean target price on Valero Energy stock has increased 35%.

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Earnings growth, valuation, and dividend yield

Wall Street analysts expect Valero Energy’s earnings to grow 26% to $6.2 per share in 2018. In the first nine months, the company’s adjusted EPS stood at $5.2. Valero Energy’s earnings have improved in the first nine months due to better refining earnings and a decline in the RIN (Renewable Identification Number) expense. Valero Energy saw $200 million declines year-over-year in its RIN cost to $431 million in the first nine months of 2018. Read Where’s Valero Energy Headed in Q4 2018? to learn more. Valero Energy stock trades at a forward PE ratio of 8.1x, which is above the peer average of 7.6x.

Valero Energy has consistently returned wealth to shareholders in the form of dividends and share buybacks. In the first nine months of 2018, the company paid $1.0 billion in dividends and repurchased $1.1 billion worth of shares. Valero Energy’s current dividend yield stands at 4.4%, which is above the peer average of 3.3%.

Overall, Valero Energy has the second-highest implied gains and an above-average dividend yield. However, the company has a lower growth estimate for 2018. Valero Energy stock trades at a higher valuation.


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