San Antonio, Texas – Valero Energy, a prominent international manufacturer of petroleum-based products and low-carbon liquid transportation fuel, is making waves in the industry once again. With its diverse segments including Refining, Ethanol, and Renewable Diesel, Valero stands out as a leader in the field. Partnered with Diamond Green Diesel, operating a renewable diesel plant in the US Gulf Coast region, Valero boasts ownership of 15 petroleum refineries in the US, Canada, and the UK, with a high-complexity throughput capacity of 3.2 million barrels per day.
Despite facing heavy maintenance in Q1, Valero kicked off the refining earning season impressively, exceeding internal estimates across all three segments. The company’s favorable position as the lowest cost producer in the US post-Ukraine/Russia conflict bodes well for its future. With a solid track record of disciplined capital management and attractive shareholders’ remuneration, Valero has seen a double-digit total return since early January 2024, outperforming the S&P 500 performance.
Analyze the global refinery market shows an imminent imbalance in supply and demand for refinery products. Limited global refinery additions in the upcoming years combined with the risk of refinery closures pose challenges. Valero remains well-positioned to benefit from these market dynamics, especially with export demand in place to capitalize on global demand tightness.
The ongoing improvements in Renewable Diesel margins through the DGD JV are promising, with EBITDA margins seeing significant growth. This positive trend is expected to continue in 2024, backed by improving feedstock prices. Additionally, Valero’s negotiations for SAF mandates and the anticipation of increased demand signal further upside potential for the company.
Looking ahead, Valero’s earnings and valuation outlook appears positive, with economic activity projected to pick up in the second half of the year. The company’s robust payout ratio, dividend payments, and share repurchases reflect a strong financial position. Valero’s capital returns aligned with free cash flow further support its share price, indicating a favorable outlook for investors.
In conclusion, Valero’s trajectory in the energy sector remains promising, driven by a surge in global oil demand and limited refinery capacity additions. With a focus on capital payout and a double-digit free cash flow yield, Valero presents an attractive investment opportunity. Despite recent successes, the company’s potential for growth and market opportunities suggest that it remains undervalued, positioning it as an overweight-rated stock for investors.
