Now Is Not The Time To Buy Valero Energy Stock

We believe there are several things to fear in VLO stock given its overall Weak operating performance and financial condition. This isn’t appropriately reflected in the stock’s Moderate valuation which is why we think it is Unattractive. Here is our multi-factor assessment.

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Let’s get into details of each of the assessed factors but before that, for quick background: With $50 Bil in market cap, Valero Energy provides transportation fuels and petrochemical products through refining, renewable diesel, and ethanol segments, operating 15 petroleum refineries with a combined 3.2 million barrels daily capacity.

[1] Valuation Looks Moderate

This table highlights how VLO is valued vs broader market. For more details see: VLO Valuation Ratios

[2] Growth Is Very Weak

• Valero Energy has seen its top line shrink at an average rate of -7.2% over the last 3 years
• Its revenues have fallen -12% from $140 Bil to $124 Bil in the last 12 months
• Also, its quarterly revenues declined -13.3% to $30 Bil in the most recent quarter from $34 Bil a year ago.

This table highlights how VLO is growing vs broader market. For more details see: VLO Revenue Comparison

[3] Profitability Appears Very Weak

• VLO last 12 month operating income was $2.1 Bil representing operating margin of 1.7%
• With cash flow margin of 3.4%, it generated nearly $4.3 Bil in operating cash flow over this period
• For the same period, VLO generated nearly $764 Mil in net income, suggesting net margin of about 0.6%

This table highlights how VLO profitability vs broader market. For more details see: VLO Operating Income Comparison

[4] Financial Stability Looks Strong

• VLO Debt was $11 Bil at the end of the most recent quarter, while its current Market Cap is $50 Bil. This implies Debt-to-Equity Ratio of 21.2%
• VLO Cash (including cash equivalents) makes up $4.5 Bil of $59 Bil in total Assets. This yields a Cash-to-Assets Ratio of 7.6%

[4] Downturn Resilience Is Weak

VLO has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• VLO stock fell 32.5% from a high of $145.08 on 7 June 2022 to $97.89 on 26 September 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 26 January 2023
• Since then, the stock increased to a high of $183.39 on 7 April 2024 , and currently trades at $160.40

 
2020 Covid Pandemic

• VLO stock fell 66.3% from a high of $96.89 on 10 January 2020 to $32.62 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 25 March 2022

 
2008 Global Financial Crisis

• VLO stock fell 81.9% from a high of $77.71 on 10 July 2007 to $14.05 on 20 November 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 11 October 2017

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read VLO Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

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