On Thursday, BofA Securities resumed coverage on Valero Energy (NYSE:VLO), issuing a Neutral rating with a price target set at $150.00. The coverage, led by the firm’s analyst, highlights Valero’s business composition, noting that 90% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) comes from refining, with the remaining 10% from renewables.
Valero Energy is recognized as a pure play refiner and is commended for its operational excellence, particularly in the durable Petroleum Administration for Defense District 3 (PADD 3). The analyst points out that Valero’s stock price is closely tied to the refining crack, which is the margin derived from processing into refined products.
The firm also notes Valero’s significant exposure to renewables and its high complexity compared to its peers. This positioning allows Valero to outperform when it comes to Renewable Identification Numbers (RINs), Low Carbon Fuel Standard (LCFS) credits, and other refining margin items. These factors are particularly advantageous for the company, given the current market dynamics.
Furthermore, the analyst mentions that potential regulatory changes, such as the California Air Resources Board (CARB) mandate step-ups, could have a positive impact on Valero. Additionally, an increase in the supply of crude oil from the Organization of the Petroleum Exporting Countries (OPEC), which could lead to a wider light-heavy (L-H) differential, is also seen as a beneficial factor for the company’s refining margins.
The $150.00 price target reflects the analyst’s assessment of Valero’s market position and future prospects within the refining and renewables sectors. The Neutral rating suggests that the firm believes Valero’s stock is fairly valued at the current levels, considering the factors mentioned.
In other recent news, Valero Energy Corporation (NYSE:) reported a significant net income of $880 million, or $2.71 per share, for the second quarter of 2024. The company’s refineries have been operating at 94% throughput capacity, and U.S. wholesale system sales surpassed 1 million barrels per day. Despite projected shortfalls in key financial metrics for the third quarter of 2024, Mizuho maintained an Outperform rating for Valero Energy, citing the company’s high-quality operations and assets.
Meanwhile, Piper Sandler downgraded Valero’s stock rating from Overweight to Neutral due to concerns about the company’s future potential relative to its peers. The company’s growth projects are advancing as planned, with capital investments of around $2 billion in 2024, and sales volumes of about 1.2 billion gallons anticipated for the Renewable Diesel segment.
Despite expecting a decline in refinery utilization in Q3 due to turnarounds, Valero anticipates improved demand later in the year. These developments highlight the recent performance and future expectations for Valero Energy as provided by financial firms and the company’s own projections.
InvestingPro Insights
To complement BofA Securities’ analysis of Valero Energy (NYSE:VLO), recent data from InvestingPro offers additional context. Valero’s P/E ratio of 7.65 suggests the stock may be undervalued relative to its earnings, aligning with the analyst’s Neutral rating. The company’s revenue for the last twelve months stands at $134.33 billion, reflecting its significant market presence in the refining sector.
InvestingPro Tips highlight Valero’s financial strength and shareholder-friendly policies. The company has maintained dividend payments for 36 consecutive years, demonstrating a commitment to returning value to shareholders. This is further supported by management’s aggressive share buyback program, which, combined with dividends, contributes to a high shareholder yield.
Despite these positives, InvestingPro data shows a revenue decline of 11.49% over the last twelve months, which may reflect the volatility in the refining sector mentioned in the BofA analysis. Additionally, Valero’s gross profit margin of 7.87% is relatively low, which could be a concern in a market sensitive to refining margins.
For investors seeking a deeper understanding of Valero’s prospects, InvestingPro offers 11 additional tips, providing a more comprehensive view of the company’s financial health and market position.
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