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Is it Worth Paying a Premium Price for Valero Energy Now?
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Key Takeaways
VLO trades at 8.95x EV/EBITDA versus the industry's 6.07x, but its fundamentals justify the premium.
Access to cheaper heavy crude and constrained global refining capacity support VLO's refining margins.
VLO gained 161.8% over the past year, backed by a strong balance sheet and upward estimate revisions.
Valero Energy Corporation (VLO - Free Report) is currently considered expensive on a relative basis, with the stock trading at an 8.95x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with the broader industry average of 6.07x. Two other refiners, Phillips 66 (PSX - Free Report) and Par Pacific Holdings, Inc. (PARR - Free Report) , are currently trading at 12.02x trailing 12-month EV/EBITDA and 3.59x trailing 12-month EV/EBITDA, respectively.
Image Source: Zacks Investment Research
Is the premium valuation justified? Before making investment decisions, one should consider the company's overall business environment and fundamentals.
VLO's Advantageous Position in Heavy Crude Aids It
The Middle East tensions are driving crude oil prices higher, with West Texas Intermediate (“WTI”) trading above $90 per barrel, according to data from Oilprice.com. The high crude price has significantly increased input costs for refiners such as VLO, PSX and PARR. 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 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%. It added $2.1 billion to its 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 its balance sheet to combat an uncertain business environment, reflecting its relatively stable business model compared to other players with a weaker balance sheet.
Time to Bet on the Stock?
Valero, with 14 refineries and a combined throughput capacity of roughly 3 million barrels per day, has witnessed upward earnings estimate revisions for 2026 over the past seven days.
Image Source: Zacks Investment Research
All the positive developments are getting reflected in the price chart. Over the past year, VLO jumped 161.8%, outperforming PARR’s 138% surge and PSX’s 107.2% gain. Thus, considering the business backdrop, it’s worth paying a premium for VLO stock, which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
View the Zacks #1 Rank List
Image: Bigstock
Is it Worth Paying a Premium Price for Valero Energy Now?
Key Takeaways
Valero Energy Corporation (VLO - Free Report) is currently considered expensive on a relative basis, with the stock trading at an 8.95x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with the broader industry average of 6.07x. Two other refiners, Phillips 66 (PSX - Free Report) and Par Pacific Holdings, Inc. (PARR - Free Report) , are currently trading at 12.02x trailing 12-month EV/EBITDA and 3.59x trailing 12-month EV/EBITDA, respectively.
Is the premium valuation justified? Before making investment decisions, one should consider the company's overall business environment and fundamentals.
VLO's Advantageous Position in Heavy Crude Aids It
The Middle East tensions are driving crude oil prices higher, with West Texas Intermediate (“WTI”) trading above $90 per barrel, according to data from Oilprice.com. The high crude price has significantly increased input costs for refiners such as VLO, PSX and PARR. 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 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%. It added $2.1 billion to its 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 its balance sheet to combat an uncertain business environment, reflecting its relatively stable business model compared to other players with a weaker balance sheet.
Time to Bet on the Stock?
Valero, with 14 refineries and a combined throughput capacity of roughly 3 million barrels per day, has witnessed upward earnings estimate revisions for 2026 over the past seven days.
All the positive developments are getting reflected in the price chart. Over the past year, VLO jumped 161.8%, outperforming PARR’s 138% surge and PSX’s 107.2% gain. Thus, considering the business backdrop, it’s worth paying a premium for VLO stock, which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.