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This Energy Stock Could Give ExxonMobil a Run: Should You Buy?
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Key Takeaways
Valero Energy gained 148.3% over the past year, outperforming ExxonMobil's 46% rise.
VLO benefits from cheaper heavy crude, diverse feedstocks and strong refining margins.
Valero Energy trades at 8.71x EV/EBITDA versus ExxonMobil's higher 9.13x multiple.
Energy is still a hot sector, with the conflicts in the Middle East continuing to draw attention. ExxonMobil Holdings Corporation (XOM - Free Report) , among the favorite Wall Street energy stocks, gained 46% over the past year. However, Valero Energy Corporation (VLO - Free Report) , also a large-cap stock, outperformed XOM and skyrocketed 148.3% over the same time frame.
Image Source: Zacks Investment Research
Should investors now focus on VLO instead of XOM? Let’s delve deeper.
VLO's Advantageous Position in Heavy Crude Aids It
The Middle East tension is driving crude oil prices higher, with West Texas Intermediate (“WTI”) trading above $95 per barrel, according to data from Oilprice.com. The high crude price has significantly increased input costs for refiners such as VLO. However, unlike many refiners, Valero Energy has a heavy-crude advantage, as heavy crude is cheaper than light crude like WTI.
Regarding the company’s access to diverse crude feedstocks, Valero Energy has an advantage because its Gulf Coast refineries can buy crude oil from many low-cost sources, including the United States, Canada and Venezuela. This gives the company more flexibility to purchase cheaper oil, which helps keep refining costs low and can boost profits when competitors have fewer sourcing options.
Constrained Global Refining Capacity Is a Boon for VLO?
Global refining capacity is constrained and fuel inventories are low. On the demand side, gasoline, diesel and jet fuel remain resilient. This means people are still driving and flying quite often, while diesel demand suggests transportation, freight, agriculture and industrial activity are still holding up. As a result, with busy refineries and fuel not in abundant supply, refining margins for refiners are quite strong.
With crude prices likely to remain high, investors shouldn’t allocate their money only to exploration and production companies but also to refining players like VLO, even though high crude prices have been increasing refiners’ input costs.
Strong Balance Sheet Provides Support for VLO
The leading refining company ended the June quarter of 2026 with a net debt-to-capitalization of just 11%. The company added $2.1 billion to cash balance during the June quarter, making its financial position even stronger. It also reported $5.3 billion of available liquidity excluding cash, providing significant financial flexibility.
Thus, the company can lean on the balance sheet to combat an uncertain business environment, reflecting its relatively stable business model compared with other players with a weaker balance sheet.
High Oil Price to Aid Upstream Operations of XOM
Turning to ExxonMobil, a highly favorable pricing environment for the commodity is likely to continue supporting its exploration and production activities, which drive the majority of earnings.
The company has a massive footprint in the Permian, the most prolific oil and gas play in the United States and offshore Guyana. In the Permian, the integrated giant has been employing new drilling techniques and artificial intelligence to boost and optimize production volumes at lower cost structures.
In Guyana, XOM has made several oil and gas discoveries, further highlighting its solid production outlook. Robust production from both assets has been aiding its top and bottom lines. In both resources, the breakeven costs are low.
Which Stock Is Better? XOM vs. VLO
Like VLO, XOM also has a strong balance sheet. XOM’s total debt-to-capitalization is 13.73%, lower than the industry’s 28.48%. This reflects the integrated energy giant’s low debt exposure.
Image Source: Zacks Investment Research
Coming to the valuation story, ExxonMobil is trading at a premium. On a relative basis, the stock is trading at a 9.13x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with VLO’s 8.71x.
Image Source: Zacks Investment Research
Hence, ExxonMobil stock, which is an integrated energy giant, is more expensive than VLO. So, investors shouldn’t rush to bet on overvalued XOM right away. However, those who have already invested may retain the stock. XOM currently carries a Zacks Rank #3 (Hold).
Investors willing to have exposure to the lucrative refining business should bet on VLO right away, currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Last Words
To conclude, VLO could continue to offer greater upside than XOM, given its stronger exposure to the favorable refining environment and cheaper valuation, although the latter remains the much larger and financially stronger company. In other words, while XOM benefits from higher oil prices through its upstream operations, VLO offers more direct exposure to strong refining margins, which could provide greater upside if the refining environment remains favorable.
View the Zacks #1 Rank List
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This Energy Stock Could Give ExxonMobil a Run: Should You Buy?
Key Takeaways
Energy is still a hot sector, with the conflicts in the Middle East continuing to draw attention. ExxonMobil Holdings Corporation (XOM - Free Report) , among the favorite Wall Street energy stocks, gained 46% over the past year. However, Valero Energy Corporation (VLO - Free Report) , also a large-cap stock, outperformed XOM and skyrocketed 148.3% over the same time frame.
Should investors now focus on VLO instead of XOM? Let’s delve deeper.
VLO's Advantageous Position in Heavy Crude Aids It
The Middle East tension is driving crude oil prices higher, with West Texas Intermediate (“WTI”) trading above $95 per barrel, according to data from Oilprice.com. The high crude price has significantly increased input costs for refiners such as VLO. However, unlike many refiners, Valero Energy has a heavy-crude advantage, as heavy crude is cheaper than light crude like WTI.
Regarding the company’s access to diverse crude feedstocks, Valero Energy has an advantage because its Gulf Coast refineries can buy crude oil from many low-cost sources, including the United States, Canada and Venezuela. This gives the company more flexibility to purchase cheaper oil, which helps keep refining costs low and can boost profits when competitors have fewer sourcing options.
Constrained Global Refining Capacity Is a Boon for VLO?
Global refining capacity is constrained and fuel inventories are low. On the demand side, gasoline, diesel and jet fuel remain resilient. This means people are still driving and flying quite often, while diesel demand suggests transportation, freight, agriculture and industrial activity are still holding up. As a result, with busy refineries and fuel not in abundant supply, refining margins for refiners are quite strong.
With crude prices likely to remain high, investors shouldn’t allocate their money only to exploration and production companies but also to refining players like VLO, even though high crude prices have been increasing refiners’ input costs.
Strong Balance Sheet Provides Support for VLO
The leading refining company ended the June quarter of 2026 with a net debt-to-capitalization of just 11%. The company added $2.1 billion to cash balance during the June quarter, making its financial position even stronger. It also reported $5.3 billion of available liquidity excluding cash, providing significant financial flexibility.
Thus, the company can lean on the balance sheet to combat an uncertain business environment, reflecting its relatively stable business model compared with other players with a weaker balance sheet.
High Oil Price to Aid Upstream Operations of XOM
Turning to ExxonMobil, a highly favorable pricing environment for the commodity is likely to continue supporting its exploration and production activities, which drive the majority of earnings.
The company has a massive footprint in the Permian, the most prolific oil and gas play in the United States and offshore Guyana. In the Permian, the integrated giant has been employing new drilling techniques and artificial intelligence to boost and optimize production volumes at lower cost structures.
In Guyana, XOM has made several oil and gas discoveries, further highlighting its solid production outlook. Robust production from both assets has been aiding its top and bottom lines. In both resources, the breakeven costs are low.
Which Stock Is Better? XOM vs. VLO
Like VLO, XOM also has a strong balance sheet. XOM’s total debt-to-capitalization is 13.73%, lower than the industry’s 28.48%. This reflects the integrated energy giant’s low debt exposure.
Coming to the valuation story, ExxonMobil is trading at a premium. On a relative basis, the stock is trading at a 9.13x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with VLO’s 8.71x.
Hence, ExxonMobil stock, which is an integrated energy giant, is more expensive than VLO. So, investors shouldn’t rush to bet on overvalued XOM right away. However, those who have already invested may retain the stock. XOM currently carries a Zacks Rank #3 (Hold).
Investors willing to have exposure to the lucrative refining business should bet on VLO right away, currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Last Words
To conclude, VLO could continue to offer greater upside than XOM, given its stronger exposure to the favorable refining environment and cheaper valuation, although the latter remains the much larger and financially stronger company. In other words, while XOM benefits from higher oil prices through its upstream operations, VLO offers more direct exposure to strong refining margins, which could provide greater upside if the refining environment remains favorable.