Valero Energy Corp Valuation – March 2019 #VLO
Company Profile (excerpt from Reuters): Valero Energy Corporation (Valero), incorporated on June 8, 1981, is an independent petroleum refiner and ethanol producer. The Company’s segments include refining, ethanol and Valero Energy Partners LP (VLP). The refining segment includes its refining operations and the associated marketing activities. The ethanol segment includes its ethanol operations and the associated marketing activities, and logistics assets that support its ethanol operations. The Company owns logistics assets (crude oil pipelines, refined petroleum product pipelines, terminals, tanks, marine docks, truck rack bays and other assets) that support its refining operations. Some of these assets are owned by VLP, which is a midstream master limited partnership owned by the Company. 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. The Company’s refineries 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 petroleum products.
Downloadable PDF version of this valuation:
ModernGraham Valuation of VLO – March 2019
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 | $35,530,599,884 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.65 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 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 | 184.13% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 12.05 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.58 | 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 | 1.65 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 1.28 | Fail | |
| 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
| EPSmg | $7.06 |
| MG Growth Estimate | 2.00% |
| MG Value | $88.28 |
| Opinion | Fairly Valued |
| MG Grade | B |
| MG Value based on 3% Growth | $102.38 |
| MG Value based on 0% Growth | $60.02 |
| Market Implied Growth Rate | 1.77% |
| Current Price | $85.08 |
| % of Intrinsic Value | 96.37% |
Valero Energy Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $6.23 in 2015 to an estimated $7.06 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 1.77% 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 within a margin of safety relative to the price.
At the time of valuation, further research into Valero Energy Corporation revealed the company was trading above its Graham Number of $84.94. The company pays a dividend of $3.2 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 12.05, which was below the industry average of 58.42, 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 $-23.1.
Valero Energy Corporation performs fairly well in the ModernGraham grading system, scoring a B.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$23.10 |
| Graham Number | $84.94 |
| PEmg | 12.05 |
| Current Ratio | 1.65 |
| PB Ratio | 1.58 |
| Current Dividend | $3.20 |
| Dividend Yield | 3.76% |
| Number of Consecutive Years of Dividend Growth | 8 |
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| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2018 |
| Total Current Assets | $17,675,000,000 |
| Total Current Liabilities | $10,724,000,000 |
| Long-Term Debt | $8,871,000,000 |
| Total Assets | $50,155,000,000 |
| Intangible Assets | $567,000,000 |
| Total Liabilities | $27,424,000,000 |
| Shares Outstanding (Diluted Average) | 422,000,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $6.28 |
| Dec2018 | $7.29 |
| Dec2017 | $9.16 |
| Dec2016 | $4.94 |
| 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 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $7.06 |
| Dec2018 | $7.38 |
| Dec2017 | $7.21 |
| Dec2016 | $6.06 |
| 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 |
Recommended Reading:
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Disclaimer:
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.
