Valero Energy stock has delivered a very large 5 year return, yet the current valuation checks point to a premium price, with both the intrinsic value estimate and market multiples indicating the shares are not cheap on recent numbers.
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Over the past 5 years Valero Energy has generated a return of very roughly 7x, which places fresh attention on whether recent gains already reflect much of the good news.
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Supportive refining margins and a tight product market can help underpin cash flow expectations. Any easing in crack spreads or lower utilization would be a clear risk for how much investors are willing to pay for the stock.
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On Simply Wall St's broader checks Valero Energy scores 0 out of 6 for value, which suggests the shares lean expensive rather than offering an obvious bargain.
The stock's next move may depend on whether Valero Energy's earnings and cash flows can grow into a price that currently screens as overvalued on intrinsic value estimates and market multiples.
Scan stocks that are similar to Valero Energy's strong recent run and still screen as higher quality on valuation and fundamentals with our curated 47 high quality undervalued stocks list.
Does Valero Energy Look Pricey on Cash Flow?
The Discounted Cash Flow (DCF) model here projects what Valero Energy might generate in free cash flow and then brings those future dollars back to today. On the latest twelve month numbers, Valero Energy produced about $10.0b in free cash flow, and the model then assumes cash flows ease back from that level over time rather than continuing to ramp higher. On those inputs, the 2 Stage Free Cash Flow to Equity model arrives at an estimated intrinsic value of about $314 per share.
Against the current share price, that intrinsic value points to the stock trading roughly 18.1% above what the cash flow projections support, so the shares screen as overvalued on this approach. The constructive refining backdrop highlighted in recent commentary on tight product markets helps explain why investors are willing to pay a premium, even though the DCF points to limited valuation headroom on current assumptions.
Overall, the DCF workup suggests Valero Energy stock currently looks overvalued relative to its modeled cash flows.
Our Discounted Cash Flow (DCF) analysis suggests Valero Energy may be overvalued by 18.1%. Discover 47 high quality undervalued stocks or create your own screener to find better value opportunities.
Has Valero Energy Run Too Far on Earnings?
P/E is a useful cross check for Valero Energy because earnings power sits at the center of how investors usually value refiners. Right now Valero Energy trades on a P/E of about 14.8x. That is above the Oil and Gas industry average of roughly 12.9x and also above the peer group average of about 10.9x.
The fair P/E ratio estimate for Valero Energy is about 11.3x. This is the level suggested by a model that blends the company's growth profile, margins, risk and size. The current 14.8x multiple is therefore several turns higher than that fair benchmark, which indicates that the stock screens as overvalued on earnings compared with both its tailored fair ratio and sector norms.
Overall, Valero Energy stock appears overvalued on its current P/E multiple relative to what recent earnings would typically justify.
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 pick up where the valuation puzzle for Valero Energy leaves off and explain what mix of future growth, margins and earnings would need to occur for the stock to be worth materially more or less than today's price on the Community page. Each narrative links a fair value to a specific combination of potential catalysts and risks so you can see over time which version of Valero Energy's story is taking shape.
One of the top community narratives on Valero Energy: 38% overvalued
"Continued commitment to capital discipline and shareholder returns, such as the 6% increase in the quarterly cash dividend, may support per-share earnings through ongoing share buybacks."
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
Valero Energy now screens as overvalued on both the Discounted Cash Flow (DCF) intrinsic value estimate and its current P/E multiple. The common thread is that the market is asking you to pay up for the recent refining backdrop and for earnings power to hold up. The valuation debate from here turns on whether cash flows can justify that premium and whether the P/E stays elevated or drifts back toward the fair ratio estimate if margins or crack spreads soften.
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.
Companies discussed in this article include VLO .
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