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Quote this valuation with its source: Fair value, Potential value and the price at analysis.
FAQ
VLO — frequently asked questions
Is Valero Energy Corporation overvalued?
In our latest published analysis dated 2026-10-03, VLO looks meaningfully overvalued. The price recorded at analysis is 406 USD versus our fair value of 315 USD; the high endpoint is presented separately as potential value of 505 USD. That implies roughly 22.5% downside to fair value at that date.
Our latest published report, analyzed 2026-10-03, gives VLO a fair value of 315 USD and a potential value of 505 USD. The conclusion is triangulated across multiple valuation models and weighted by reliability for Valero Energy Corporation's archetype; it is a dated research output, not a live price.
Should I buy VLO now?
Our latest published rating for VLO, analyzed 2026-10-03, is Sell. Valero Energy Corporation looks meaningfully overvalued at the analysis-date price of 406 USD versus fair value of 315 USD; potential value is 505 USD. This is research for educational purposes, not personalized investment advice.
What are the biggest risks for VLO?
The dedicated bear-case section in our report analyzed 2026-10-03 documents Valero Energy Corporation's material risks, evidence, thresholds, and thesis-invalidation conditions. Scenario-specific explanations remain in that section so the report does not repeat or decontextualize them elsewhere.
What is VLO's rating?
Our latest published rating for VLO, analyzed 2026-10-03, is Sell, with a published moat assessment of 6.5/10 (Narrow). It reflects our fair value of 315 USD, the potential value of 505 USD, and the price recorded at analysis (406 USD).
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§1 RésuméEN
Réponse en 30 secondesSell
Prix par rapport à la valeur
Cours
$406.30
Juste valeur
$314.88
Valeur potentielle
$505.32
Au
2026-10-02
Pourquoi le scénario peut fonctionner
Upside toward the upper-bound valuation of $505.32 would require the approximately 5.0 million barrels per day of offline international capacity to experience prolonged multi-year delays beyond initial expectations, keeping Atlantic Basin crack spreads at peak levels and enabling Valero to maximize wide heavy crude discounts on Venezuelan and Canadian slates with Q3 2026 cash operating costs held at $4.75 per barrel.
Ce qui changerait notre avis
Consolidated operating margin falling below 2.0% over a 12-month horizon.
Valero Energy Corporation (NYSE: VLO) is rated Sell with a fair value midpoint of $314.88 per share, representing an implied return of -22.5% and a 29.0% market price premium relative to its current share price of $406.30 as of October 2, 2026. While Valero commands a narrow economic moat grounded in high Nelson complexity and heavy crude processing cost advantages, current equity valuations price in an unsustainable continuation of peak Atlantic Basin refining crack spreads, overlooking structural cyclical margin compression and higher capital reinvestment needs.3,4
Valero Energy's investment profile presents an acute divergence between operational execution and market pricing. At the current share price of $406.30, the market capitalizes downstream merchant refining economics at an implied premium of 29.0% over our intrinsic valuation of $314.88. Consensus expectations project FY2026 diluted to surge to $47.59 on consolidated revenues of $150,951M, propelled by approximately 5.0 million barrels per day of global refining capacity remaining offline across the Middle East and Russia. However, cyclical refining economics dictate that extraordinary margins cannot permanently outpace capacity restoration and price-induced product demand moderation. Consensus already projects FY2027 to contract by 20.1% to $38.04 and FY2027 to contract by 12.4% to $132,166M, signaling that the earnings cycle has reached its apex.
Valero's narrow economic moat (score 6.5) is underpinned by structural scale and complexity advantages rather than downstream pricing power. Across its refining fleet, which accounted for $116,166M or 94.7% of total FY2025 revenue, high Nelson complexity allows Valero to remain the primary U.S. processor of heavily discounted Venezuelan heavy, high-acid crude and expanding Canadian heavy slates. Operating efficiency remains strong, evidenced by guided Q3 2026 cash operating expenses of $4.75 per barrel in refining and controlled corporate overhead of $960M for full-year 2026. Furthermore, new greenfield refining capacity remains economically constrained by prohibitive replacement costs. Nevertheless, these structural advantages defend unit cost parity rather than eliminating the volatility of commodity crack spreads, as shown by consolidated operating income declining to $3,181M in FY2025 from $15,690M in FY2022.4,6,7
Capital intensity and working capital dynamics present incremental hurdles for equity holders as refining margins normalize. Management guidance establishes capital investments of approximately $2.0B for FY2026, representing a step-up from $796M in FY2025, including $250M for repairs on the Port Arthur hydrotreater unit. Furthermore, rapid crude pullbacks risk triggering substantial working capital cash draws, prompting balance-sheet vigilance. Meanwhile, the Renewable Diesel segment recorded an operating loss of -$156M in FY2025, reflecting regulatory credit unpredictability and feedstock dynamics,. Discounting projected cash flows across our forward schedule yields an enterprise valuation anchored at $314.88, which sits 7.5% below the present-value equivalent of the 12-month analyst consensus target of $340.48, supporting an unambiguous Sell recommendation.3,4,7
Feedstock Flexibility and Heavy Crude Discount Capture
Valero's high Nelson complexity refinery footprint allows it to process high volumes of discounted heavy and high-acid crudes from Venezuela and Canada, securing delivered crude cost advantages over sweet-crude cracking competitors.4
Persistent Atlantic Basin Capacity Constraints
Approximately 5.0 million barrels per day of global capacity remains offline across Russia and the Middle East, while high replacement costs prevent new greenfield builds, supporting elevated product pricing and FY2026 consensus revenue of $150,951M.1,4
Disciplined refining cash operating costs guided at $4.75 per barrel for Q3 2026 and corporate overhead guided at $960M support strong cash flow from operations ($5,826M in FY2025) and historical share buyback returns exceeding 20%.4,6
Recommandation maison
Sell. Valero Energy Corporation trades at $406.30 per share, representing an unsustainable 29.0% market premium over our composite intrinsic valuation of $314.88. Investors should reduce exposure as peak Atlantic Basin refining margins normalize toward mid-cycle fundamentals.3
Présentation de l’entreprise
VALERO ENERGY CORP/TX sells refined petroleum products in both the wholesale rack and bulk markets. These sales include products that are manufactured in its refining operations, as well as products purchased or received on exchange from third parties. •The Refining segment includes the operations of its petroleum refineries, the associated activities to market its refined petroleum products, and the logistics assets that support its refining operations. The principal products manufactured by its refineries and sold by this segment include gasolines and blendstocks, distillates, and other products. •The Renewable Diesel segment includes the operations of DGD, a consolidated joint venture as discussed in Note 12, and the associated activities to market low-carbon fuels.
The principal products manufactured by DGD and sold by this segment are renewable diesel, renewable naphtha, and neat SAF. This segment sells some renewable diesel and neat SAF to the Refining segment for blending into petroleum-based diesel and conventional jet fuel, respectively, which is then sold to that segment’s customers as finished product.
§2 Cas baissierEN
A severe macroeconomic downturn combining Atlantic Basin crack spread collapse toward marginal European hydroskimming parity and rapid crude price declines would expose Valero's cyclical earnings vulnerability. During rapid commodity price pullbacks, working capital requirements create sharp cash drains on liquidity. At the same time, full-year capital expenditures step up to $2.0B, including $250M for the Port Arthur DHT unit repair, reducing free cash flow flexibility. If refining operating income drops toward historical cyclical lows ($2,130M in FY2021) and the Renewable Diesel segment continues to face regulatory headwinds following its -$156M operating loss in FY2025, consolidated operating margin would fall below 2.0%, severely curtailing discretionary share repurchases and forcing a substantial re-rating toward downside enterprise values.
Consolidated operating margin drops below 2.0% as international capacity returns
Consolidated annual revenue contracts more than -15% over a multi-year horizon
Comment cette thèse peut échouer
Global crack spread collapse and heavy crude differential narrowing
Global refining capacity restarts across the Middle East and Russia, while heavy crude discounts from Venezuela and Canada narrow, dropping consolidated operating margin below 2.0% and severely compressing EBIT and cash generation from FY2025 levels ($3,181M operating income on $122,687M revenue).3,4,6
Signaux d'alerte précoce à surveiller
Les cinq évolutions qui affaibliraient notre thèse d’investissement.
A decline in operating margin below 2.0% indicates that global crack spreads have collapsed toward European hydroskimming breakeven levels and heavy crude feedstock discounts have narrowed, severely compressing consolidated EBIT and operating cash flow generation.
Valero Energy Corporation's narrow economic moat rests upon structural cost advantages and efficient scale across its high-complexity refining system. With refining generating $116,166M of revenue in FY2025 (94.7% of consolidated revenue), the company's competitive standing is anchored in its Gulf Coast, Mid-Continent, and North Atlantic facilities. Management maintains rigorous operating cost discipline, guiding Q3 2026 refining cash operating expenses to approximately $4.75 per barrel and corporate overhead to $960M, positioning Valero near the bottom of the merchant refining cash cost curve.
A primary source of Valero's operational cost advantage is its Nelson complexity advantage and feedstock flexibility. The company has historically served as the largest U.S. consumer of Venezuelan heavy crude and regularly processes heavy Canadian barrels. The ability to process high-acid, discounted heavy feeds while maximizing high-value transportation fuel yields provides a structural margin uplift over less complex refiners, enabling superior cash conversion through varying commodity cycles.
Efficient scale in Atlantic Basin refining further insulates Valero's competitive positioning. Greenfield refinery construction requires prohibitive capital expenditures, stringent environmental permits, and multi-year construction timelines. Because Northwest European hydroskimming capacity represents the marginal supply needed to balance Atlantic Basin demand, product crack spreads are economically floored at levels that incentivize those higher-cost European units to run, ensuring Valero captures super-marginal cash margins under normalized conditions.
Despite these strengths, Valero's moat is constrained to Narrow due to the volatile commodity nature of refining crack spreads and regulatory uncertainties. Consolidated operating income declined from $15,690M in FY2022 to $3,181M in FY2025, highlighting commodity exposure. Furthermore, the Renewable Diesel segment recorded an operating loss of -$156M in FY2025, reflecting regulatory credit volatility that currently limits the diversification benefit of low-carbon investments.
Profit économique
Valero generates economic profits well in excess of its cost of capital during peak and mid-cycle refining environments, supported by a computed WACC of 7.6861% and moderate cost of equity of 7.9732%. In FY2025, the company delivered $5,826M in operating cash flow and $5,030M in free cash flow against net income of $2,348M, funding share repurchases that management notes have historically delivered returns in excess of 20%. However, downstream refining remains inherently cyclical: operating income declined from $15,690M in FY2022 to $3,181M in FY2025, demonstrating that economic profits narrow significantly during cyclical spread troughs.2,4,5,6
6.5/ 10
Narrow
Sources of advantage
01Cost Advantage — Valero operates an industry-leading complex refining footprint capable of processing high volumes of discounted, heavy sour and high-acid crude slates from Venezuela and Canada, while maintaining low refining cash operating expenses guided at $4.75 per barrel for Q3 2026 and controlled corporate overhead guided at $960M for 2026.Wide
02Efficient Scale — Global refining capacity additions face prohibitive capital replacement costs and severe regulatory constraints. Marginal Northwest European hydroskimming capacity sets the economic pricing floor for Atlantic Basin crack spreads, shielding Valero's low-cost Gulf Coast and coastal export infrastructure from rationalized new entrants.Moderate
Menaces connues pour l'avantage
Menace
Gravité
Calendrier
Atténuation
Narrowing heavy-to-light crude oil differentials from increased competition or geopolitical disruptions in Venezuelan and Canadian supply.
medium
12 to 24 months
Valero maintains deep commercial flexibility to substitute alternative crude slates, including Canadian heavy crudes and domestic light barrels, preserving feed cost optimization,.4
The highlighted cell is Fair value when every assumption sits at its base level ($314.88). Each row and column shows what Fair value becomes when one assumption moves.
Free cash flow to the firm stays positive in the first projected year at $8.0B after modeled reinvestment of $802.4M, with terminal value at 69.2% of enterprise value. A sudden drop in free cash flow is not projected unless capital spending relative to revenue, reinvestment, or gross margin resets materially.
Valero captures peak cyclical refining earnings in FY2026 supported by robust Gulf Coast throughput and low cash operating expenses of $4.75/bbl. Over the subsequent four years, refining crack spreads normalize toward marginal European hydroskimming economics, driving operating margins down to the 4.0% mid-cycle level. Disciplined capital allocation keeps annual reinvestment between 9.1% and 12.5%, generating solid mid-cycle cash conversion.4
With $406.30 trading materially above Fair value ($314.88), near-term earnings beats driven by peak crack spreads do not resolve the multi-year cyclical margin normalization modeled into the valuation.
Conforme
Maintain Sell; Continue executing planned position trims and monitor throughput stability across Gulf Coast and North Atlantic facilities against guided targets.
Déclencheur: Consolidated Q3 EPS matching consensus expectations and refining cash operating costs aligning with guided targets.4
Inline financial results confirm the expected normalization of crack spreads from peak levels, leaving the stock materially overvalued relative to discounted mid-cycle cash flows.
Manqué
Maintain Sell; Accelerate portfolio reallocation away from the equity as early margin deterioration validates cyclical down-cycle progression.
An operational miss resulting from narrowing crude differentials or weakening product cracks confirms accelerated margin normalization toward European hydroskimming parity, compounding downside toward mid-cycle fair value.
Qualité des résultats
Valero exhibits strong earnings quality characterized by robust cash conversion, with FY2025 operating cash flow of $5,826M and free cash flow of $5,030M substantially exceeding net income of $2,348M. Stock-based compensation of $117M in FY2025 represents less than 5% of net income. However, earnings quality is subject to commodity-induced working capitalvolatility: sudden drops in crude prices prompt working capital cash draws, while Renewable Diesel posted an operating deficit of -$156M in FY2025, requiring close scrutiny of non-refining segment contributions.4,
Métriques à surveiller avant publication
01
Métrique:
Refining Cash Operating Expenses per Barrel
ActuelGuided at approximately $4.75 per barrel for Q3 2026.
Pourquoi c'est important
Maintaining low plant-level operating costs preserves Valero's cost buffer against marginal European refiners as product crack spreads normalize.
02
Métrique:
Gulf Coast Refinery Throughput
ActuelGuided between 1.78M and 1.83M barrels per day for Q3 2026.
Pourquoi c'est important
The Gulf Coast assets represent Valero's primary volume driver and heavy crude processing core; meeting guidance ensures fixed-cost absorption.
Cash generation demonstrates strong conversion from net income, though it remains inherently cyclical. In FY2025, operating cash flow reached $5,826M and free cash flow stood at $5,030M on net income of $2,348M. The house forecast models free cash flow to firm peaking at $8,025M in FY2026 alongside peak operating income of $11,322M, before declining to $4,999M in FY2027 and stabilizing near $3,534M by FY2030 as crack spreads normalize. Management prudently builds cash buffers during up-cycles to manage the working capital cash draws that accompany rapid crude price drops.4,5,6
Allocation du capital
Valero pursues a disciplined, shareholder-return-centric framework. Management has maintained a targeted capital reinvestment budget of $2.0B for FY2026, an orderly step-up from $796M in FY2025 that funds Port Arthur DHT repairs ($250M) and sustaining maintenance. Capital returns are heavily focused on share repurchases, which management notes have historically delivered returns in excess of 20%, supporting modeled reductions of 2.5% in FY2026. The dividend is calibrated to remain sustainable through full commodity down-cycles while offering peer-competitive annual growth.
Valero's return on invested capital reaches a cyclical peak in FY2026 alongside elevated refining crack spreads, before tapering across FY2027-FY2030 as margins normalize toward the mid-cycle 4.0% operating margin level. The multi-year trajectory reflects healthy economic value generation above cost of capital during peak periods, followed by stabilization at normalized mid-cycle return levels.
ROIC comfortably exceeds the computed WACC of 7.6861% and moderate Ke of 7.9732% during the 2026 cyclical upswing, but the spread narrows considerably as operating margins normalize to 4.0% by FY2030.
Consolidated operating income dropped from $15,690M in FY2022 to $3,181M in FY2025, while the house forecast projects operating margin rebounding to 7.5% in FY2026 before normalizing to 5.5% in FY2027 and 4.0% by FY2030.
Dernier chiffre d’affaires122,7 Md $USTCAC du chiffre d’affaires +5,5 %
Marge opérationnelle2,6 %10 périodes fiscales
Dernier flux de trésorerie disponible5 Md $USFY2025
Dette nette3,6 Md $USFY2025
Décomposition du compte de résultatComment la taille de l’activité se traduit en bénéfice publié.30 juin 2026
Aperçu du bilanComment les actifs publiés sont détenus et financés pour la période sélectionnée.
StockMarketAgent.AI
Composition des actifsFinancé par
Total de l’actif58 Md $USTrésorerie4,7 Md $USActifs courants23,2 Md $USTotal du passif31,4 Md $USPassifs courants14,1 Md $USCapitaux propres26,6 Md $US
Données de ventilation du bilan
Total de l’actif
57 988 000 000 $US
Trésorerie
4 688 000 000 $US
Actifs courants
23 210 000 000 $US
Total du passif
31 383 000 000 $US
Passifs courants
14 109 000 000 $US
Capitaux propres
26 605 000 000 $US
Passerelle des flux de trésorerieComment le flux de trésorerie d’exploitation est devenu du flux de trésorerie disponible en FY2025.
StockMarketAgent.AI
Rapprochement des flux d’exploitation
Résultat net2,3 Md $USDotations aux amortissements+63 M $USRémunération en actions+117 M $USAutres ajustements opérationnels+3,3 Md $USFlux de trésorerie d'exploitation5,8 Md $US
Rapprochement de la trésorerie d’ouverture à la clôture
Trésorerie d’ouverture4,8 Md $USFlux de trésorerie d'exploitation+5,8 Md $USFlux d’investissement−1,8 Md $USFlux de financement−4,2 Md $USEffet de change+237 M $USTrésorerie de clôture4,9 Md $US
5,8 Md $US − 796 M $USFlux de trésorerie disponible 5 Md $US
Données de la passerelle des flux de trésorerie
Résultat net
2 348 000 000 $US
Entrées d’exploitation
5 826 000 000 $US
Dotations aux amortissements
63 000 000 $US
Rémunération en actions
117 000 000 $US
Autres ajustements opérationnels
3 298 000 000 $US
Flux de trésorerie d'exploitation
5 826 000 000 $US
Trésorerie disponible
10 892 000 000 $US
Trésorerie d’ouverture
4 829 000 000 $US
Effet de change
237 000 000 $US
Sorties d’investissement
1 845 000 000 $US
Capex
796 000 000 $US
Autres activités d’investissement
1 049 000 000 $US
Sorties de financement
4 182 000 000 $US
Rachats d’actions
2 598 000 000 $US
Dividendes versés
1 405 000 000 $US
Remboursement net de dette
94 000 000 $US
Autres activités de financement
85 000 000 $US
Trésorerie de clôture
4 865 000 000 $US
Flux d’investissement
-1 845 000 000 $US
Flux de financement
-4 182 000 000 $US
Chiffre d’affaires par activitéPart du chiffre d’affaires total pour 2026-06-30.
36,6 MdChiffre d’affaires total
Chiffre d’affaires par activitéPart
Cost of29,5 Md80,5 %
Autres7,1 Md19,5 %
Données de répartition du chiffre d’affaires: Chiffre d’affaires par activité
Chiffre d’affaires par activité
Chiffre d'affaires
Part
sur un an
Cost of
29,5 Md
80,5 %
—
Other
7,1 Md
19,5 %
—
Chiffre d’affaires par zone géographiquePart du chiffre d’affaires total pour 2025-12-31.
122,7 Md $USChiffre d’affaires total
Chiffre d’affaires par zone géographiquePart
United States87,8 Md $US71,6 %−5,9 % sur un an
United Kingdom And Ireland15,8 Md $US12,9 %+3,9 % sur un an
Canada8,1 Md $US6,6 %−5,1 % sur un an
Autres5,7 Md $US4,7 %−22 % sur un an
Mexico And Peru5,2 Md $US4,2 %−4,4 % sur un an
Source: SEC EDGAR · Déposé le 2026-02-25 · SEC EDGAR
Données de répartition du chiffre d’affaires: Chiffre d’affaires par zone géographique
Chiffre d’affaires par zone géographique
Chiffre d'affaires
Part
sur un an
United States
87,8 Md $US
71,6 %
-5,9 %
United Kingdom And Ireland
15,8 Md $US
12,9 %
3,9 %
Canada
8,1 Md $US
6,6 %
-5,1 %
Other
5,7 Md $US
4,7 %
-22 %
Mexico And Peru
5,2 Md $US
4,2 %
-4,4 %
Chiffre d’affaires et résultatsComment la taille de l’activité se traduit en bénéfice publié.
Trésorerie et detteLiquidités disponibles face à l’endettement total.
Génération de trésorerieFlux de trésorerie d’exploitation comparé au flux de trésorerie disponible.
RentabilitéÉvolution des marges brute, opérationnelle et nette.
Données financières ponctuelles utilisées dans l’analyse du 2026-10-03.
Valero Energy Corporation (VLO) trades at 10.2x forward earnings against a peer median of 9.8x. Its EV/EBITDA of 9.2x compares with a peer median of 8.1x. The comparison uses 4 peers: Marathon Petroleum Corporation, Phillips 66, ConocoPhillips and EOG Resources Inc., as of 2026-10-02 to 2026-10-03.
§10 Secteur et cycleEN
Phase du cycle
Peak
Valero is increasing capital investments to $2.0B in 2026 compared to $796M in FY2025, reflecting sustaining capital requirements, Port Arthur DHT repairs ($250M), and selective debottlenecking. Globally, approximately 5.0 million barrels per day of refining capacity remains offline across the Middle East and Russia, while new refinery construction costs are historically prohibitive.3,4
Cycle haussier
A prolonged cyclical bull phase would see structural capacity deficits persist as complex facility repairs in the Middle East take longer than projected, while prohibitive greenfield construction costs prevent new global supply additions. Under this scenario, Northwest European hydroskimming units remain the marginal balancing supplier, keeping Atlantic Basin crack spreads structurally elevated and allowing Valero to sustain operating margins above 5.5% into FY2027.
Cycle baissier
A cyclical downturn would emerge from the reopening of global transit routes, the return of damaged Middle East and Russian refining capacity,, and prolonged clean transportation fuel demand destruction under elevated prices. This would compress Atlantic Basin crack spreads back to European hydroskimming breakeven levels, driving annual revenue down toward FY2027 consensus expectations of $132,166M and contracting operating margins toward cyclical lows.
Tendances séculaires
Tendance
Impact
Note
Prohibitive greenfield refining replacement costs
positive
Extreme capital costs and extended development timelines for new refinery construction limit net global capacity additions, maintaining structural support for Atlantic Basin crack spreads.
Heavy and sour crude feedstock availability
positive
Expanding heavy crude exports from Venezuela and Canada provide complex coastal refiners with access to deeply discounted feedstocks relative to benchmark light sweet crudes,.
Positionnement
Valero is positioned as a low-cost, high-complexity merchant refiner capable of outperforming peers during both peak and mid-cycle conditions. With cash operating expenses guided at $4.75 per barrel and significant heavy crude processing flexibility, Valero captures premium margins over marginal European competitors, while its disciplined overhead structure ($960M G&A) protects cash flow generation.4
§11 Gestion de positionEN
Taille de position
0%
Under a Sell rating with the stock trading at $406.30 —a 29.0% premium over the compositefair value of $314.88 —no long portfolio exposure is recommended. Capital should be redirected toward opportunities offering positive asymmetry.3
Risque
Risk management requires mitigating severe operational leverage and commodity crack spread volatility. Given that Valero's valuation reflects peak FY2026 earnings before multi-year cyclical normalization, strict exposure limits and capital preservation mandates take precedence over chasing near-term earnings beats. Portfolio allocations should reflect the negative return asymmetry implied by current market pricing relative to discounted mid-cycle cash flows.
Tranches d'entrée
Niveau
Action
Pourquoi
$315.00
Re-underwrite intrinsic valuation and assess mid-cycle crack spread stabilization.
Aligns with the house compositefair value midpoint ($314.88), where the current 29.0% market price premium is eliminated.
$238.00
Evaluate initiating a cyclical deep-value monitoring position if refining crack spreads have reached trough levels.
Corresponds to the consensus 12-month target low price, offering a margin of safety against cyclical trough .
Tranches de sortie
Niveau
Action
$406.30
Execute immediate position liquidation or portfolio trim given the 29.0% market premium over intrinsic fair value ($314.88).
$425.00
Aggressively divest all remaining residual shares if market momentum produces an upside overshoot toward prior peaks.
Points de contrôle trimestriels
Métrique
Seuil
Action
Refining Cash Operating Costs
> $5.00 per barrel
Downgrade operational efficiency assumptions and accelerate portfolio divestment.
Triggers formal pillar falsification for refining scale and complexity, reducing modeled mid-cycle toward historical cyclical lows.
§12 Perspectives des investisseursEN
Value Investors
Avoid
Valero trades at a 29.0% premium to its intrinsic fair value midpoint of $314.88. With forward consensus modeling a 20.1% earnings contraction in FY2027 ($38.04 vs. $47.59 in FY2026), value investors face negative margin of safety as refining margins mean-revert toward 4.0%.1
Income and Dividend Investors
Avoid
Although the $4.80 annualized dividend is well covered by historical free cash flow ($5,030M in FY2025), the current dividend yield offers negligible protection against -22.5% projected capital depreciation, particularly as capital expenditures increase to $2.0B in FY2026.4,5
Momentum and Cyclical Growth Investors
Avoid
Consensus estimate revisions show negative momentum for outer-year revenues (-1.04% post-earnings), with FY2027 consensus revenues contracting to $132,166M from $150,951M in FY2026, signaling that the cyclical crack spread expansion has peaked.1
§14 Recommandation finaleEN
Action
Vendre
We recommend a Sell rating for Valero Energy Corporation. At $406.30 per share, the market is pricing in an unsustainable duration of peak crack spreads, resulting in an implied return of -22.5% against our compositefair value of $314.88. Investors should capitalize on current strength to harvest gains before FY2027 revenue (-12.4%) and EPS contraction (-20.1%) unfold.1,3
While Valero's operational execution is commendable—demonstrated by $4.75/bbl refining cash opex guidance and $5,030M in FY2025 free cash flow —the stock's 29.0% premium over fair value leaves no margin of safety. Rising FY2026 capex to $2.0B and working capital vulnerability during oil price declines make risk-adjusted returns unfavorable.
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Sources
The records this analysis drew on, as they stood when it was run.
Not every cited input appears here: internal calculations and intermediate model outputs have no external record, and some citations could not be matched to one.
Terminal P/E multiple compresses to 7.6x under accelerating decarbonization headwinds
Working capital cash draws occur during rapid crude price drops4
Global macroeconomic softening and the return of offline international refining capacity in the Middle East and Asia erode Atlantic Basin crack spreads back to European hydroskimming breakeven levels,. Feedstock discounts on heavy crude narrow, while elevated capital expenditures of $2.0B and ongoing Renewable Diesel losses (-$156M in FY2025) compress free cash flow and impair shareholder distributions.
FV impact
-12.1%
Operating margin 3 points lower throughout
Trigger
Within 12 months
Severe macroeconomic recession and global refined product demand destruction
A severe industrial recession and global product demand destruction depresses multi-year revenue growth below -15% YoY, far exceeding the projected FY2027 contraction of -13.51% to $132,166M and amplifying negative post-earnings revision momentum (-1.04%).1,4
FV impact
-5.2%
Revenue and EPS growth 5 points lower for five years
Trigger
Within 24 months
Long-term terminal multiple compression from decarbonization mandates
Long-term terminal P/E multiple contracts from 9.5x toward 7.6x, dropping below peer forward levels (MPC at 8.68x), driven by accelerating fossil fuel demand transition risks, EV adoption, and regulatory uncertainty surrounding renewable fuels policy.4
FV impact
-5.5%
Terminal multiple 20% lower
Trigger
Within 36 months
Cost of capital spike from sustained higher-for-longer interest rates and refining risk premium
Computed WACC increases by 200 bps from 7.6861% to 9.6861% as persistent higher-for-longer interest rates above the 5.24% risk-free rate combine with widening credit spreads and an elevated equity beta above 0.6151, significantly discounting enterprise DCF value.2
Capex exceeding $2.5B reflects capital discipline deterioration, severe turnaround cost overruns, or unbudgeted facility repair escalation beyond the $250M Port Arthur DHT restoration, impairing free cash flow conversion.
Deepening operating deficits in renewable fuels signal that regulatory uncertainty, volatile D4 RIN pricing, and feedstock cost inflation are structurally impairing low-carbon segment economics, preventing EBIT recovery.
Cyclical crack spread normalization toward marginal cost as international refining capacity restarts and demand softens under elevated prices.
high
18 to 36 months
Refining cash operating costs guided at $4.75 per barrel provide a structural cost buffer that keeps Valero profitable when marginal European hydroskimmers reach breakeven.4
Regulatory volatility in renewable fuel standards and credit pricing leading to sustained operating deficits in Renewable Diesel.
medium
12 to 36 months
Management has paused capital expansion in Renewable Diesel and guided Q3 2026 operating expenses to $0.49 per gallon while pursuing low-cost debottlenecking in ethanol.4
Discounted forecast-period cash flows (67,88 $US) plus discounted terminal value (153 $US) minus signed per current share (12,41 $US) equals the 208 $US lens value shown above. Negative net debt is , so subtracting it raises value.
Valero captures widened heavy sour crude discounts on Venezuelan and Canadian feeds4
Operating margins remain above 5.5% into FY2027 and annual capex stays disciplined near $2.0B4
Atlantic Basin crack spreads remain structurally elevated as persistent global capacity outages between the Middle East and Russia and prohibitive greenfield replacement costs prevent market oversupply. High Nelson complexity allows Valero to maximize discounted heavy crude processing margins, sustaining elevated refining profitability and strong free cash flow generation for share repurchases.4
Peak earnings in FY2026 ($47.59 EPS consensus) are cyclical rather than secular, requiring valuation methods that discount normalized mid-cycle cash flows rather than capitalizing peak spreads.
Full-year 2026 capexguidance of $2.0B represents a 151% increase over FY2025 capex of $796M, driven by Port Arthur DHT restoration and sustaining investments.
Higher reinvestment requirements (reinvestment rate rising from 9.09% in FY2026 to 12.50% by FY2030) reduce the proportion of cash flow available for discretionary buybacks as earnings normalize.
Earnings diversification into renewable fuels remains limited by regulatory margin headwinds.
Renewable Diesel generated an operating loss of -$156M in FY2025, while refining generated $4,040M of operating income on $116,166M of revenue,.
Valero remains almost entirely leveraged to merchant petroleum refining crack cycles (94.7% of revenues), with low-carbon segments currently acting as a modest drag on consolidated EBIT.
ConocoPhillipsCOP
Cours / juste valeur
Juste valeur125,61 $USReport-date price127,3 $US
Date d’évaluation
Avantage concurrentielNarrow
Score d’investissement70 / 100
EOG Resources Inc.EOG
Cours / juste valeur
Juste valeur166,77 $USReport-date price140,35 $US
Date d’évaluation
Avantage concurrentielNarrow
Score d’investissement81 / 100
Marge
VLO
Valero Energy Corporation
$117.0B
10.2x
0.9x
9.2x
27.6%
—
MPC
Marathon Petroleum Corporation
$123.3B
8.7x
0.8x
9.9x
42.1%
13.6%
PSX
Phillips 66
$105.4B
10.3x
0.7x
12.4x
23.5%
8.5%
COP
ConocoPhillips
$152.3B
13.1x
2.4x
6.3x
14.2%
31.5%
EOG
EOG Resources Inc.
$75.3B
9.3x
2.8x
5.3x
22.5%
40.7%
Energy transition mandates and renewable fuels policy uncertainty
negative
Regulatory uncertainty surrounding renewable fuel standards, blending mandates, and feedstock qualification creates volatility, contributing to Renewable Diesel operating deficits (-$156M in FY2025) and paused capital expansion.
