Valero Earnings: Surpasses Expectations While Keeping Payouts Above Targets

Valero Energy reported fourth-quarter 2023 earnings that surpassed market expectations on stronger-than-expected refining results as the company continues to operate well amid a relatively favorable environment. Adjusted earnings fell sharply to $1.2 billion during the fourth quarter from $3.2 billion the year before. During the quarter, Valero paid $1.3 billion in dividends and repurchases, for a payout ratio of 73% and bringing its full-year payout ratio to 60% of adjusted cash flow, well above its 40%-50% annual target. We plan to update our model with the latest market conditions and first-quarter 2024 guidance, but do not expect a material revision to our fair value estimate or a change to our narrow moat rating.