Valero (VLO) Stock Trades Richly Even After A 7x Run
Valero Energy stock has delivered very strong multi year gains, yet the latest valuation checks suggest the shares trade at a premium, with both the Discounted Cash Flow (DCF) intrinsic value estimate and market multiples pointing to an overvalued picture.
- Over the past 5 years, Valero Energy has returned very roughly 7x, which puts extra focus on whether today’s price already reflects much of the good news.
- Supportive refining conditions can help sustain cash flow for Valero Energy, while any easing in crack spreads or refining margins may put pressure on what investors are currently willing to pay for those cash flows.
- On Simply Wall St’s broader checks, Valero Energy scores 0 out of 6 on value, which means the stock currently leans expensive rather than looking like a clear bargain.
The issue now is whether Valero Energy’s recent share price strength leaves enough room for a reasonable margin of safety based on its current intrinsic value estimates.
Scan beyond Valero Energy’s sharp multi year run and evaluate other stocks with strong fundamentals using the solid balance sheet and fundamentals stocks screener (52 results)
Does Valero Energy Look Pricey on Cash Flow?
The Discounted Cash Flow (DCF) model uses projected cash flows to estimate what Valero Energy might be worth today based on those cash flows. For Valero Energy, the latest twelve month free cash flow is about $10.0b, and the model assumes cash flows soften from that level over time rather than grow aggressively. On that basis, the 2 Stage Free Cash Flow to Equity model arrives at an estimated intrinsic value of about $323 per share.
This intrinsic value sits below the current share price, which implies the stock screens roughly 13.5% overvalued on this DCF view. Recent commentary about a tight refining market and higher crack spreads helps explain why the market is comfortable paying more than the cash flow model suggests.
Overall, the DCF workup indicates Valero Energy stock currently appears overvalued relative to its modeled cash flows.
Our Discounted Cash Flow (DCF) analysis suggests Valero Energy may be overvalued by 13.5%. Discover 54 high quality undervalued stocks or create your own screener to find better value opportunities.
Is Valero Energy Getting Expensive on Earnings?
The P/E ratio is a useful cross check for Valero Energy because earnings remain a key focus for refiners. Valero Energy currently trades on a P/E of about 14.7x, which is above both the Oil and Gas industry average of roughly 12.7x and the broader peer average of about 10.9x.
The fair P/E ratio implied by Simply Wall St’s model is about 11.3x, which reflects what investors might typically pay for a company with Valero Energy’s earnings profile and risk characteristics. The gap between the current 14.7x and this 11.3x fair level suggests the stock screens as overvalued on earnings, even after accounting for its sector, size, and fundamentals.
On the P/E multiple, Valero Energy stock currently looks overvalued compared with both industry benchmarks and the fair ratio estimate.
See what the numbers say about this price — find out in our valuation breakdown.
The Valero Energy Narrative: What Would Justify Today's Price?
Simply Wall St Narratives for Valero Energy pick up where the valuation work leaves off. They spell out which paths for Valero Energy's growth, margins and earnings would need to play out for the stock to be worth materially more or materially less than today’s price on the Community page. Instead of giving only a single figure from a ratio or model, Narratives outline the future that figure assumes so you can see over time whether that story still fits.
One of the top community narratives on Valero Energy: 37% overvalued
"A strong balance sheet and $5.3 billion of available liquidity provide Valero with operational and financial flexibility to invest in growth and optimization projects..."
Read one of the top narratives on Valero Energy
Do you think there's more to the story for Valero Energy? Head over to our Community to see what others are saying!
The Bottom Line
For Valero Energy, both the Discounted Cash Flow (DCF) intrinsic value estimate and the current P/E multiple point to an overvalued stock at today’s price. The DCF work suggests limited upside based on current cash flow assumptions, while the earnings multiple already incorporates a full set of expectations. With the broader value checks also weak, the key question for investors is whether refining margins and cash generation can stay firm enough to justify this valuation, or whether a cooler outlook on crack spreads would bring the share price closer to the intrinsic value estimate.
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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