Yahoo Finance Valero’s Valuation: Lower than Historical Averages
Analyzing Updates that Impact Oil Refiner Valero Energy
Valero’s valuation
Valero Energy (VLO) has traded at an average PE (price-to-earnings ratio) of 9.2x from 4Q13–4Q15. PE ratio measures the company’s price per share as a multiple of earnings per share (or EPS). Usually, everything else being equal, the higher the ratio, the more expensive the stock.
VLO’s PE ratio has been volatile in the past two years. Favorable refining margins have led to a rise in earnings from its Refining segment.
Amid fluctuations, Valero’s PE ratio has fallen from 11.9x in 4Q13 to 8.9x in 4Q15. Valero currently trades at 8.3x PE, lower than its historical average.
Valero’s EV-to-EBITDA and price-to-cashflows
From 4Q13–4Q15, VLO’s EV-to-EBITDA and price-to-cashflows ratio stood at an average of 4.4x and 5.6x, respectively. In 1Q14, EV-to-EBITDA and price-to-cashflows saw highs of 5.3x and 6.7x, respectively. As earnings rose from 1Q14–3Q15, valuations fell. However, due to a fall in earnings in 4Q15, its valuation multiples rose.
Earnings fell across the refining sector. Refiners like Marathon Petroleum (MPC), Tesoro (TSO), and Phillips 66 (PSX) have also witnessed subdued earnings in 4Q15. If you’re looking for exposure to refining sector stocks, you can consider the iShares US Oil & Gas Exploration & Production ETF (IEO). IEO has an exposure of ~27% to the sector.
Currently, Valero (VLO) trades at EV-to-EBITDA and price-to-cashflows ratios of 4.3x and 5.8x. Valero’s EV-to-EBITDA ratio is lower than the historical average, whereas VLO’s price-to-cashflows ratio is marginally higher than its historical average.
What do valuations reveal?
Valuations reveal that Valero trades lower than the historical valuations. This is due to the fact that the fall in Valero’s stock price, as discussed in Part 1 of the series, has been steeper than a fall in earnings.
However, the fact that Valero has satisfactory leverage position, a sound cash flow situation, and great shareholder returns in the form of dividends and buybacks, places Valero in a likely attractive valuation spot.
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