On August 28, 2023, Valero Energy Corp (VLO, Financial) experienced a slight day's loss of -1.04%, following a 3-month gain of 16.71%. The company's Earnings Per Share (EPS) stands at 29.03. But the question remains: is the stock fairly valued? This article provides an in-depth analysis of Valero Energy's valuation, financial strength, and growth prospects. Let's delve into the details.
Introducing Valero Energy Corp (VLO, Financial)
Valero Energy, one of the largest independent refiners in the United States, operates 15 refineries with a total throughput capacity of 3.2 million barrels a day in the United States, Canada, and the United Kingdom. The company also owns 12 ethanol plants with a capacity of 1.6 billion gallons of ethanol a year and holds a 50% stake in Diamond Green Diesel, which can produce 1.2 billion gallons per year of renewable diesel. With a market cap of $46.50 billion, Valero Energy's stock price stands at $131.74 per share, slightly below its GF Value of $133.84, indicating a fair valuation.
Understanding Valero Energy's GF Value
The GF Value is an exclusive GuruFocus measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price significantly deviates from the GF Value Line, it indicates that the stock is either overvalued or undervalued. In the case of Valero Energy (VLO, Financial), the stock appears to be fairly valued, suggesting that its long-term return is likely to be close to the rate of its business growth.
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Assessing Valero Energy's Financial Strength
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, investors should review a company's financial strength before purchasing shares. Valero Energy's cash-to-debt ratio is 0.45, ranking worse than 52.25% of 1022 companies in the Oil & Gas industry. However, the overall financial strength of Valero Energy is 8 out of 10, indicating strong financial health.
Valero Energy's Profitability and Growth
Profitable companies, especially those with consistent profitability over the long term, pose less investment risk. Valero Energy's profitability and growth have been impressive. The company has been profitable 9 out of the past 10 years, with an operating margin of 9.48%, ranking better than 51.29% of 969 companies in the Oil & Gas industry. The company's 3-year average annual revenue growth rate is 19.4%, ranking better than 69.52% of 853 companies in the same industry.
ROIC vs WACC: Valero Energy's Value Creation
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to assess its profitability. A higher ROIC than WACC indicates that the company is creating value for shareholders. Over the past 12 months, Valero Energy's ROIC was 28.86, while its WACC was 9.38.
Conclusion: Is Valero Energy (VLO, Financial) a Fairly Valued Stock?
In conclusion, Valero Energy's stock appears to be fairly valued. The company's strong financial condition and impressive profitability, coupled with its robust growth, make it an attractive investment. To learn more about Valero Energy's financials, check out its 30-Year Financials here.
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