Valero Energy Corporation – August 2016 $VLO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Valero Energy Corporation (VLO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Valero Energy Corporation (Valero), through Valero Energy Partners LP (VLP), owns, operates, develops and acquires crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets. The Company operates in two segments: refining and ethanol. Its refining segment includes refining and marketing operations in the United States, Canada, the United Kingdom, Aruba and Ireland. Its ethanol segment includes ethanol and marketing operations in the United States. VLP’s assets include crude oil and refined petroleum products pipeline and terminal systems in the United States Gulf Coast and the United States Mid-Continent regions. Its refineries can produce conventional gasolines, premium gasolines, gasoline meeting the specifications of the California Air Resources Board (CARB), diesel, low-sulfur diesel, ultra-low-sulfur diesel, CARB diesel, other distillates, jet fuel, asphalt, petrochemicals, lubricants and other refined products.

VLO Chart

VLO data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of VLO – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $25,240,282,478 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.87 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 482.30% Pass
6. Moderate PEmg Ratio PEmg < 20 10.18 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.25 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.87 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

VLO value chart August 2016

EPSmg $5.39
MG Growth Estimate 15.00%
MG Value $207.39
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $78.11
MG Value based on 0% Growth $45.79
Market Implied Growth Rate 0.84%
Current Price $54.82
% of Intrinsic Value 26.43%

Valero Energy Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.71 in 2012 to an estimated $5.39 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.84% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Valero Energy Corporation revealed the company was trading above its Graham Number of $54.08. The company pays a dividend of $2.1 per share, for a yield of 3.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.18, which was below the industry average of 55.24, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-18.5.

Valero Energy Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

VLO charts August 2016

Net Current Asset Value (NCAV) -$18.50
Graham Number $54.08
PEmg 10.18
Current Ratio 1.87
PB Ratio 1.25
Current Dividend $2.10
Dividend Yield 3.83%
Number of Consecutive Years of Dividend Growth 6


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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $16,180,000,000
Total Current Liabilities $8,652,000,000
Long-Term Debt $0
Total Assets $45,452,000,000
Intangible Assets $0
Total Liabilities $24,876,000,000
Shares Outstanding (Diluted Average) 470,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.92
Dec2015 $7.99
Dec2014 $6.85
Dec2013 $4.97
Dec2012 $3.75
Dec2011 $3.68
Dec2010 $0.57
Dec2009 -$3.67
Dec2008 -$2.16
Dec2007 $8.88
Dec2006 $8.64
Dec2005 $6.10
Dec2004 $3.27
Dec2003 $1.27
Dec2002 $0.21
Dec2001 $2.21
Dec2000 $1.40
Dec1999 $0.06
Dec1998 -$0.21
Dec1997 $0.44
Dec1996 $0.36

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.39
Dec2015 $6.23
Dec2014 $4.89
Dec2013 $3.22
Dec2012 $1.71
Dec2011 $0.95
Dec2010 $0.54
Dec2009 $1.54
Dec2008 $4.41
Dec2007 $7.00
Dec2006 $5.34
Dec2005 $3.33
Dec2004 $1.86
Dec2003 $1.11
Dec2002 $0.93
Dec2001 $1.12
Dec2000 $0.52

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Enterprising Investor – August 2016
10 Most Undervalued Companies for the Enterprising Investor – July 2016
Dividend Investors Should Research These 10 Stocks – July 2016
10 Low PE Stocks for the Enterprising Investor – July 2016
5 Companies for Value Investors with a High Beta – July 2016

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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