Back to top

Analyst Blog

Shares of Valero Energy Corporation (VLO - Analyst Report) hit a 52-week high of $56.69 during Thursday’s trading session. However, the stock closed the session at $56.64, which reflects a solid return of 23.9% over the past six months. The average trading volume for the last three months aggregated 7,050,610 shares.

Among all the independent refiners, Valero offers the most diversified refinery base with a capacity of 3.0 million barrels per day in its 16 refineries throughout the U.S., Canada and the Caribbean. More importantly, Valero is best positioned to profit from increased refining margins mainly on account of its strategic refinery structure that enables it to use cheaper oil for over half of its needs.

Valero spun off an 80% stake from its retail arm – CST Brands Inc. (CST - Snapshot Report) – through a tax-advantaged distribution to shareholders, to unlock value in May 2013. The spin-off generated an immediate net cash benefit of $500 million, after shelling out $220 million in taxes. The remaining 20% was divested by the company in Nov 2013. We believe that the move would help the company to concentrate on its industry-specific strategies.

Further, last December, the company came up with an initial public offering for its logistics master limited partnership (MLP) – Valero Energy Partners LP (VLP - Snapshot Report). The MLP not only enables Valero to monetize its existing infrastructure, but also offers a favorable financing option for logistics projects.

Valero remains optimistic on the ongoing economic growth projects. These are expected to drive earnings in the future. The company also replaced all imported light sweet crude oil used at its Gulf Coast and Memphis, TN, refineries with cheaper North American crude oil recently.

However, Valero’s earnings increased 30.5% year over year in the first quarter of 2014. This growth was bolstered by higher refining throughput margins in each of the company’s regions, except the U.S. Mid-Continent. Company-wide throughput margins increased to $10.90 per barrel from the year-ago level of $10.59 per barrel. The increase was buoyed by higher discounts for light sweet and sour crude oil.

Currently, Valero carries a Zacks Rank #2 (Buy). Among its peers, CVR Refining, LP (CVRR - Snapshot Report) with a Zacks Rank #1 (Strong Buy) is also worth considering.