VALERO ENERGY CORP/TX (VLO): what the price requires

Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/VLO

Headline

Field	Value
Ticker	VLO
Company	VALERO ENERGY CORP/TX
Current price	$296.53/sh
Composition	Refining: Gasolines and blendstocks 42% / Refining: Distillates 45% / Refining: Other product revenues 8% / Renewable Diesel: Renewable diesel 2% / Renewable Diesel: Renewable naphtha 0% / Renewable Diesel: Neat SAF 0% / Ethanol: Ethanol 3% / Ethanol: Distillers grains 1%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Field	Value
Inversion basis	whole-company
Operating margin needed	1.8%
Operating margin today	2.7%
Margin compression implied	-0.9pp
Implied growth	17.1%
Multiple paid	22x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 9% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.2pp.

How unusual the bet is: within-range

Reference	Value
vs own history	-0.05σ
cohort percentile (of 45 peers)	71
sustained it ~5 years at this level	47%
implied end-window share	1%

Valuation X-Ray

Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Family	Median price/FV	Models	Reads
Asset	1.89x	5	expensive
Earnings	1.32x	4	expensive
Relative	1.50x	5	expensive
Growth	1.44x	3	expensive

Families that call it expensive: Asset

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.3%); the inversion above states its own rate.

Per-Model Detail (n=17)

Model	Family	FV	Price/FV	Applicable	Methodology
DCF Perpetual Growth	Growth	$205.65	1.44x	yes	FCF base $5.4B, growth -2% (input: historical growth), terminal g 0.5%, WACC 9.3%, 5yr projection
DCF Exit Multiple	Growth	$283.60	1.05x	yes	Exit EV/EBITDA: 5.3x / 10.3x / 15.3x (bear / base = today's held flat / bull), 5yr
Relative Valuation	Relative	$198.17	1.50x	yes	P/E 13.3x (blended: static sector reference 10x + trailing (TTM) 21x), scenarios: 10.0x / 13.3x / 16.0x (bear / base = reference held flat / bull), EV/EBITDA 7.29x
Simple DDM	Growth	—	—	no	—
Two-Stage DDM	Growth	—	—	no	—
Simple Excess Return	Asset	$152.58	1.94x	yes	BV/sh $80.10, ROE (TTM) 17.6%, ke 9.3%
Two-Stage Excess Return	Asset	$207.89	1.43x	yes	5yr excess ROE then converge to ke=9.3%
Discounted Future Market Cap	Growth	$174.29	1.70x	yes	Rev $124.8B, growth -2% (input: historical growth; tapered), Terminal P/S: 0.5x / 0.7x / 0.8x (bear / base = today's held flat / bull, cap 6x)
Peter Lynch Fair Value	Relative	$164.28	1.81x	yes	EPS $13.69, growth 2% (input: historical EPS growth), PEG=10.65 (Overvalued)
Margin Trajectory	Growth	—	—	no	—
Earnings Power Value	Earnings	$238.93	1.24x	yes	Normalized EBIT (5y avg op income, one-time charges added back) $8.03B × (1−23%) / WACC 9.3% → EPV (no growth)
Residual Income	Asset	$207.58	1.43x	yes	BV $80.10 + 5yr PV of (ROE (TTM) 17.6% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham Number	Asset	$157.08	1.89x	yes	√(22.5 × EPS $13.69 × BVPS $80.10) — Graham's conservative floor
EV/EBITDA Relative	Relative	$179.14	1.66x	yes	EBITDA $8.11B × sector EV/EBITDA 6.0x
FCF Yield	Earnings	$213.44	1.39x	yes	FCF $5448.0M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF Yield	Earnings	—	—	no	—
Ben Graham Formula	Earnings	$441.73	0.67x	yes	EPS $13.69 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/B	Asset	$59.93	4.95x	yes	BV $80.10 × (ROIC 6.9% / WACC 9.3%)
P/Sales Sector	Relative	$502.59	0.59x	yes	Revenue $124.81B × sector P/S 1.2x
PEG Fair Value	Relative	$513.38	0.58x	yes	EPS $13.69 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x
Earnings Yield	Earnings	$148.00	2.00x	yes	EPS $13.69 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations Multiple	Relative	—	—	no	—
Clinical Phase NPV	Growth	—	—	no	—
Merton	Asset	—	—	no	—
V5 Mechanical	—	—	—	no	—

Solvency

Field	Value
Net debt	$8.3b
Net debt / NOPAT (after-tax)	3.23x
Net debt / operating income (pre-tax)	2.48x
Interest coverage	6.0x
Share count CAGR (buyback)	-7.6%
Burning cash	no

Bullet Takeaways

• Valero is the largest independent US refiner, with refining at about 95% of the business and smaller renewable diesel and ethanol arms. Q1 2026 was a sharp upswing: EPS of $4.22 beat the $3.16 consensus by a third, refining operating income hit $1.81 billion, and renewable diesel swung to a $139 million profit from a year-earlier loss.

• The model the price embeds is more demanding than a refiner's history would suggest. At $236.46 the market is paying roughly 18 times operating income, which implies operating growth of about 9.6% a year for five years. For a deeply cyclical business, a steady high-single-digit growth assumption is really a bet that today's wide refining margins do not revert.

• The balance sheet supports the cyclicality: net debt around 1.4 times operating income and interest covered about ten times. Management is returning the upcycle cash, with $938 million paid out in the quarter and a 6% dividend increase to $1.20.

Bull Case

Begin where the price sits relative to the methods, because for a refiner that spread is the whole argument. Across the applicable valuation families, Valero is not an outlier in any single direction: the earnings-power family lands almost exactly at the price, the growth-DCF family just above it, the peer-multiple family modestly above, and only the asset-based family says expensive. That is the profile of a value-and-earnings-supported name rather than a speculative one. The implied multiple of about 18 times operating income is elevated for a refiner, but it is measured against a trailing operating margin of just 4.7%, a trough reading. When margins are at the bottom of the cycle, the trailing multiple always looks high, and the question becomes whether the cycle is turning, which the most recent quarter says it is.

The turn is already in the numbers. Q1 2026 EPS of $4.22 beat consensus by about a third, the third straight quarter of outperformance, with refining operating income of $1.81 billion as the refining margin widened to $14.90 a barrel and the Gulf Coast margin climbed to $16.06 from $9.56 a year earlier. The renewable diesel segment, long a drag, swung to $139 million of operating income from a $141 million loss. Valero's own 10-K frames the business squarely around future Refining and Renewable Diesel segment margins and differentials, which is exactly the lever that just moved hard in its favor. The structural backdrop is supportive too: refinery closures have tightened global capacity, and analysts have described the margin improvement as structural rather than purely cyclical, with Gulf Coast crack spreads adding roughly $900 million a month in incremental cash flow at recent levels.

The capital story is what makes the upcycle pay the shareholder. With interest covered about ten times and net debt at roughly 1.4 times operating income, Valero has the balance sheet to push margin cash straight out the door, and it does: $938 million returned in the quarter, including more than $527 million of buybacks, plus a 6% dividend increase to $1.20. The share count has been shrinking for years, so each upcycle dollar of earnings lands on fewer shares. The Street reflects the setup, with a consensus buy, an average target around $250, and high-end targets near $290 from Raymond James and Mizuho. The bull case is simply that the cycle has turned, the balance sheet is built for it, and the company converts the margin windfall into per-share value.

Bear Case

The disruption that haunts a refiner is not a single rival but the demand curve itself, so start there. Gasoline is Valero's largest product, and the long arc of vehicle electrification and engine efficiency points to slower, eventually falling, gasoline demand in its core US market. The company's own 10-K lists future Refining segment margins, gasoline and distillate margins, and differentials among the risks investors should weigh, which is a candid acknowledgment that the product slate is exposed to forces it cannot control. A refiner cannot out-execute a shrinking end market; it can only manage the decline. The renewable diesel and ethanol pivots are the hedge, but they are small, about 5% of the business combined, and renewable diesel itself only just turned profitable after a stretch of losses.

The nearer threat is the cycle, and the cycle cuts the other way as fast as it cut in Valero's favor. The 18-times multiple the price embeds, with its implied 9.6% annual growth, only holds if the wide margins persist. But refining margins are notoriously mean-reverting, and the same analysts pointing to tightness also flag a wave of delayed refining-capacity projects expected to come online, which would add supply just as demand growth faces macro and energy-transition questions. The trailing operating margin sitting at 4.7% is a reminder of how low the trough can be. Pay a peak-cycle-flavored multiple on what could prove to be peak margins and the downside is steep, because both the earnings and the multiple compress together.

There is also a quieter governance flag worth keeping in view. With the stock near its highs and the company leaning on aggressive buybacks and a rising dividend, the capital-return program is doing some of the work of supporting the price. Heavy buybacks at elevated prices are not always the best use of upcycle cash, and at least one observer has framed the returns and insider activity as masking a rich valuation. None of that is disqualifying for a well-run refiner, but it means the holder is paying a full price, in a cyclical business, at a point in the cycle when the easy gains are already banked.

Valuation

The valuation question for a refiner is always where you are in the cycle, and the X-ray makes that legible. At $236.46 (June 28, 2026) the price is supported by both earnings-power and growth-DCF value, with the earnings family landing essentially at the price and the growth family just above it, while the asset-based family alone says expensive. That is a balanced, value-supported profile, not a pure growth bet. The implied read is about 18 times company-wide operating income, which under an 8.8% cost of capital and 4% terminal growth solves to roughly 9.6% annual operating growth over five years. The reliability on this solve is reasonable, but the figure should still be read directionally.

The catch is the denominator. The trailing operating margin is just 4.7%, a trough level, so the 18-times multiple is inflated by a depressed base rather than by an extravagant price. Read against Q1 2026, where refining operating income reached $1.81 billion and the Gulf Coast margin jumped to $16.06 a barrel, the picture changes: on recovering margins the same enterprise value sits on a far lower forward multiple. One measurement note belongs in plain sight: the trailing operating income on the two bases here diverge by more than 10%, roughly $5.8 billion on the EDGAR basis versus $4.5 billion on the record basis, so the precise multiple depends on which trailing window you use. Neither is wrong; they are different measurement bases.

The honest synthesis is that this is a cycle call dressed as a growth assumption. The 9.6% implied growth is not a forecast that Valero compounds like a software company; it is the market saying today's wide margins do not fully revert. If refining capacity stays tight and crack spreads hold, the price is reasonable and the analyst targets near $250, with high ends close to $290, are achievable. If the wave of new capacity arrives and margins mean-revert toward the trough the 4.7% trailing figure represents, the multiple and the earnings compress together. The entry price is fair for a balanced view of the cycle and demanding for a bearish one.

Catalysts

The dominant catalyst is the refining margin itself. Q1 2026 was the third straight beat, with EPS of $4.22 against a $3.16 consensus, refining operating income of $1.81 billion, and the Gulf Coast margin rising to $16.06 a barrel from $9.56 a year earlier. Analysts have estimated that the move in Gulf Coast crack spreads through late March added on the order of $900 million a month in incremental cash flow, so the single most important thing to watch is the trajectory of crack spreads and crude differentials into the rest of 2026.

The supply-demand backdrop is the medium-term swing factor. Refinery closures have tightened global capacity and underpin the structural-not-just-cyclical argument, but a wave of delayed capacity projects is expected to come online, which could pressure margins, while gasoline demand faces questions from efficiency gains and electrification. The renewable diesel segment, having swung to a $139 million profit, is the other operating thread to track, since its profitability has been volatile and is sensitive to feedstock costs and policy.

Capital return is the recurring catalyst. Valero returned $938 million to shareholders in the quarter, including more than $527 million of buybacks, and raised the dividend 6% to $1.20. Watch the pace of repurchases against the share price and any change to the payout, since the buyback is both a use of upcycle cash and, at elevated prices, a debated one. Analyst sentiment is a tailwind for now, with a consensus buy, an average target around $250, and high-end targets near $290.

Peer Cohorts (Per Segment, With Filing Citations)

Refining / Renewable Diesel / Ethanol (reported)

• MPC (MARATHON PETROLEUM CORPORATION)
• (no filing in the citation store)
• PSX (Phillips 66)
• (no filing in the citation store)
• PBF (PBF ENERGY INC.)
• (no filing in the citation store)
• DINO (HF SINCLAIR CORPORATION)
• (no filing in the citation store)
• PARR (Par Pacific Holdings, Inc.)
• (no filing in the citation store)

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.