Is It Too Late To Consider Valero Energy (VLO) After Its Strong Multi‑Year Rally?

• If you are wondering whether Valero Energy is priced fairly after its strong run, this article will walk through what the current market price might be implying about the company.
• The stock recently closed at US$178.27, with returns of 8.1% over the last 7 days, 2.4% over 30 days, 7.8% year to date, 48.3% over 1 year and 48.1% over 3 years, and a very large 5 year return of 259.4%.
• These moves have kept Valero Energy on the radar for investors who follow large US refiners and energy names more broadly. Recent attention has focused on how the share price reflects the company’s position in the energy sector and what that might mean for future capital allocation and shareholder returns.
• On our checks, Valero Energy has a valuation score of 2 out of 6. This sets up a closer look at how different valuation approaches stack up for the stock and hints at an even more helpful way to think about valuation that we will come back to at the end.

Valero Energy scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Valero Energy Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business could be worth by projecting the cash it might generate in the future and then discounting those cash flows back to today’s dollars.

For Valero Energy, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about US$4.0b. Analysts provide cash flow estimates for the next few years, and Simply Wall St extends these out further, with free cash flow projections reaching around US$4.1b in 2035, all expressed in US$ and then discounted back to today using an appropriate rate.

Putting these cash flow projections together, the model arrives at an estimated intrinsic value of about US$279.09 per share. Compared with the recent share price of US$178.27, the DCF output suggests the stock is around 36.1% undervalued on this methodology.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Valero Energy is undervalued by 36.1%. Track this in your watchlist or portfolio, or discover 877 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Valero Energy.

Approach 2: Valero Energy Price vs Earnings

For profitable companies like Valero Energy, the P/E ratio is a common way to think about value because it links what you pay for each share to the earnings that the business is currently generating.

In general, higher growth expectations and lower perceived risk can support a higher P/E, while slower growth and higher risk tend to go with a lower, more conservative P/E that investors might see as “normal” for a stock.

Valero Energy is trading on a P/E of 36.47x. That sits above the Oil and Gas industry average of 13.13x and also above the peer average of 25.46x. Simply Wall St’s Fair Ratio framework estimates what a more tailored P/E could look like, given factors such as earnings growth, industry, profit margins, market cap and company specific risks. For Valero Energy, this Fair Ratio is 22.41x. Because it is built around the company’s own fundamentals, this approach can be more informative than relying only on broad industry or peer comparisons.

Comparing the current P/E of 36.47x with the Fair Ratio of 22.41x suggests the shares are trading above that Fair Ratio estimate.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Valero Energy Narrative

Earlier we mentioned that there is an even better way to think about valuation. On Simply Wall St this comes through Narratives, where you set out your story for Valero Energy, link it to a forecast for revenue, earnings and margins, and end up with your own fair value that you can compare with the current price inside the Community page that millions of investors use.

A Narrative is simply your view of what is driving the business, written in plain language, and then backed by numbers like expected 2028 earnings between US$2.3b and US$4.9b, profit margins rising toward 3.3%, and whatever P/E you think is reasonable. This way you can see how those beliefs translate into a fair value that may sit below or above the current share price.

For Valero Energy, one investor might lean closer to the higher earnings and US$181.0 price target, while another might align with the more cautious US$133.0 view. As new earnings reports, news or analyst targets arrive, the Narratives on the platform update automatically so you can quickly see whether your fair value still makes sense beside the live market price.

Do you think there's more to the story for Valero Energy? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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