Valero Energy Stock: A Value-Priced Energy Stock with Growth Potential

Valero Energy Stock

Valero Energy (NYSE:VLO), a leading downstream company and the world’s largest petroleum refiner has demonstrated impressive long-term performance, outperforming the S&P 500 index by a substantial margin. While the recent geopolitical tensions in the Middle East have driven oil prices higher, Valero stock is still trading below its early 2023 highs, making it an intriguing value proposition. Let’s look at some key points.

Strong Historical Returns 

Valero Energy stock has delivered remarkable returns for long-term investors, with a gain of approximately 400% since October 2013, outpacing the S&P 500’s 202% return during the same period.

Attractive Dividend Yield

Despite the recent pullback, Valero offers a compelling forward dividend yield of 3.09%, which can be particularly appealing in today’s low-yield environment.

Value Priced

Valero’s forward price-to-earnings (P/E) ratio stands at 5.14x, making it significantly undervalued compared to the sector median. This presents an opportunity for value investors.

Diverse Portfolio 

Valero Energy is the largest producer of low-carbon transportation fuels, operating 15 petroleum refineries and owning 12 ethanol plants. The company is actively engaged in reducing refinery greenhouse gas emissions and expanding its low-carbon fuels business.

Record Profits 

The company reported record profits in 2022, driven by favorable market conditions and capital projects. In Q4 2022, Valero reported net income of $3.1 billion, while Q2 2022 earnings reached $11.5 billion.

Renewable Diesel Growth

Valero’s renewable diesel and ethanol business segments have demonstrated substantial growth. In Q2 2023, the renewable diesel business nearly tripled its operating income, while the ethanol business reported a 26% increase in operating income.

Strong Dividend Growth 

Valero has a history of increasing dividends, with an annual growth rate of 17.7% over the past decade, a noteworthy achievement in the energy sector.

Analyst Recommendations

Of the 16 analysts covering Valero stock, 11 recommend a “strong buy,” one suggests a “moderate buy,” three recommend “hold,” and one advises a “strong sell.” The average price target implies an expected upside of approximately 16% from the current price.

With its diversified portfolio, focus on low-carbon fuels, and the potential for growth, Valero Energy is well-positioned to rebound and potentially reach new highs, especially as crude oil prices continue to trend upward. The stock remains an attractive option for value-conscious investors seeking both income and growth potential.

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