Valero Energy Corporation (VLO)

Conclusion

Valero Energy refines crude oil into transportation fuels and petrochemical products, sells them through its own outlets and wholesale markets, and also runs renewable diesel and ethanol plants. At 356.75 USD on 9 November 2026, the shares give a market capitalisation of 99.49 billion USD and an enterprise value of 100.65 billion USD.

The verdict is undervalued. The P/E of 7.69 is below its ten-year median of 12.23, and EV/EBITDA of 4.82 is below its median of 6.58. The discounted cash flow gives 915.23 USD per share at a discount rate of 8.87%, while the fair value from historical multiples is 488.19 USD. The fair value band runs from 561.37 to 842.05 USD with a midpoint of 701.71 USD, a margin of safety of 96.7% at the current price. The reverse DCF implies revenue growth of -9.7% a year, against a five-year revenue CAGR of 13.6%, so the price assumes a contraction the company has not delivered.

What holds the case up is a return on invested capital of 45.6% against a WACC of 8.4%, free cash flow conversion of 116.5% over the last twelve months, and net debt to EBITDA of 0.06. What could break it is the three-year EPS decline of -36.1%, the next-year EPS growth estimate of -10.6%, and revenue growth in only four of the last ten years.

Financial health

Financial strength is green, held up by a current ratio of 1.72, a net debt to EBITDA of 0.06, and interest coverage of 31.6x. The quick ratio is 1.26 and debt to equity is 0.39, both as of 30 September 2026. The Altman Z-score is 6.10, in the safe zone. The Altman model was built for manufacturers; Valero is a refiner, so the score is a reasonable guide but not a precise one. Insolvency risk: low, about 0.26% by the estimate of the Ohlson model over one to two years. Debt fell by 19.5% a year over the five years to 2025, a sign that the balance sheet has been deliberately reduced rather than stretched.

Earnings quality

Earnings quality is green, supported by free cash flow conversion of 116.5% over the last twelve months and an accrual ratio of -5.9%, which means reported earnings are backed by cash. Over five years, conversion averaged 63.9%, a weaker figure. The stock-based compensation figure is missing from the data, so its share of revenue is not available. Free cash flow after stock-based compensation was 15.08 billion USD. The share count fell by 5.4% a year over five years, reflecting buybacks. The Piotroski score is 6 out of 9. The Beneish M-score of -2.93 points to an unlikely chance of earnings manipulation. Valero beat analyst estimates in all eight of the last quarters, with an average surprise of 152.8%. Estimates for the current year rose by 43.6% over 90 days, while estimates for next year rose by 93.0% over 90 days even though the implied next-year growth is -10.6%.

Profitability

Profitability is green, with a gross margin of 15.5%, an operating margin of 12.0% and a net margin of 8.8%. Their ten-year medians are 4.6%, 3.7% and 2.5%. Return on invested capital is 45.6% against a WACC of 8.4%, a ROIC minus WACC of 37.3 points, and its five-year median is 10.1%. Return on equity is 46.3%, but part of it comes from leverage: the DuPont split shows a net margin of 1.9%, an asset turnover of 2.12x and an equity multiplier of 2.44x, the last two as of 31 December 2025. Operating margin stability is 0.77, meaning margins have held up reasonably well through the cycle.

Growth

Growth is red. Revenue fell at a compound rate of 11.4% over three years, though it rose 13.6% a year over five years and 3.4% a year over ten. Earnings per share fell 36.1% a year over three years and 0.5% a year over ten. Free cash flow per share grew 7.4% a year over ten years. Revenue grew in four of the last ten years. The outlook is also weak: the next-year EPS growth estimate is -10.6%. The sharp swings in the revenue CAGRs show a business tied closely to refining margins and fuel demand, not a steady compounder.

Valuation

Valuation is green. The P/E is 7.69 against a ten-year median of 12.23, a premium of -37.2%. EV/EBITDA is 4.82 against 6.58, a premium of -26.7%. Price to free cash flow is 6.60 against 9.28, a premium of -28.9%. Price to sales is 0.68 against 0.33, a premium of 104.2%, and price to book is 3.56 against 1.74, a premium of 104.8%. The discounted cash flow gives 915.23 USD per share at a discount rate of 8.87%, with 55.3% of its value in the terminal period. The fair value from historical multiples is 488.19 USD. The fair value band is an order-of-magnitude estimate built on fixed assumptions, a 5% equity risk premium and capped growth, not a price target. The dividend yield is 1.41% and the payout on free cash flow is 9.3%.

Risks

A fall in EPS, now down 36.1% over three years, would weigh on the case because the valuation rests on earnings and cash flow holding up. The next-year EPS estimate of -10.6% points to pressure already expected. Revenue has grown in only four of ten years, so the company's sales are volatile. Terminal value accounts for 55.3% of the discounted cash flow value, so the 915.23 USD figure depends heavily on long-term assumptions and should be read with caution. The stock-based compensation figure is not available, which limits the check on earnings quality. This analysis has no debt maturity schedule and no revenue split by segment, so it cannot show when debt falls due or which of the three segments drives results.