Company Reports

Valero Energy reported first-quarter 2023 earnings that once again surpassed market expectations, largely on stronger-than-expected refining results, as the company continues to enjoy a favorable refining margin environment. Adjusted earnings fell sharply to $1.3 billion during the fourth quarter from $3.1 billion the year before. During the quarter, Valero paid $1.4 billion in dividends and repurchases, for a payout ratio of 74%, well above its 40%-50% annual target. However, management noted in times of strong market conditions, payouts will exceed that level, and it will act more as a floor. Given the current market outlook, investors should expect those higher payout levels to continue in the near term. We plan to update our model with the latest market conditions and second-quarter 2024 guidance but do not expect a material revision to our fair value estimate or a change to our narrow moat rating.

Valero remains well positioned for almost any market environment thanks to its high-quality refining assets and their location, which affords it greater feedstock flexibility. Historically, Valero has held an advantage thanks to its system of 15 refineries that is more complex than competitors', allowing it to process lower-quality feedstock into a high-value product. With the emergence of domestic light crude discounts it pivoted to processing greater amounts of high-quality discounted domestic crude by substituting domestic for imported crude, constructing additional light crude processing capacity and investing in transportation infrastructure.

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.

Valero remains well positioned for almost any market environment thanks to its high-quality refining assets and their location, which affords it greater feedstock flexibility. Historically, Valero has held an advantage thanks to its system of 15 refineries that is more complex than competitors', allowing it to process lower-quality feedstock into a high-value product. With the emergence of domestic light crude discounts it pivoted to processing greater amounts of high-quality discounted domestic crude by substituting domestic for imported crude, constructing additional light crude processing capacity and investing in transportation infrastructure.

Valero remains well positioned for almost any market environment thanks to its high-quality refining assets and their location, which affords it greater feedstock flexibility. Historically, Valero has held an advantage thanks to its system of 15 refineries that is more complex than competitors', allowing it to process lower-quality feedstock into a high-value product. With the emergence of domestic light crude discounts it pivoted to processing greater amounts of high-quality discounted domestic crude by substituting domestic for imported crude, constructing additional light crude processing capacity and investing in transportation infrastructure.

Valero Energy reported third-quarter earnings that slightly exceeded market expectations on a combination of continued favorable refining market conditions and strong operations. Adjusted earnings fell modestly to $2.6 billion during the third quarter from $2.9 billion the year before. During the quarter, Valero paid out 68% of adjusted cash flow in dividends and $1.8 billion in repurchases, well above its 40%-50% annual target. We plan to update our model with the latest market conditions and fourth-quarter guidance but do not expect a material revision to our fair value estimate.

Valero remains well positioned for almost any market environment thanks to its high-quality refining assets and their location, which affords it greater feedstock flexibility. Historically, Valero has held an advantage thanks to its system of 15 refineries that is more complex than competitors', allowing it to process lower-quality feedstock into a high-value product. With the emergence of domestic light crude discounts it pivoted to processing greater amounts of high-quality discounted domestic crude by substituting domestic for imported crude, constructing additional light crude processing capacity and investing in transportation infrastructure.

Valero Energy reported second-quarter earnings that exceeded market expectations as it continued to benefit from a relatively favorable refining market, strong operations, and growing renewable diesel business. However, adjusted earnings fell to $1.9 billion during the second quarter from $4.6 billion the year before as refining margins normalized after a record 2022. During the quarter it paid out 53% of adjusted cash flow in dividends and repurchases, above its 40%-50% annual target.

Valero remains well positioned for almost any market environment thanks to its high-quality refining assets and their location, which affords it greater feedstock flexibility. Historically, Valero has held an advantage thanks to its system of 15 refineries that is more complex than competitors', allowing it to process lower-quality feedstock into a high-value product. With the emergence of domestic light crude discounts it pivoted to processing greater amounts of high-quality discounted domestic crude by substituting domestic for imported crude, constructing additional light crude processing capacity and investing in transportation infrastructure.

Valero Energy reported first-quarter earnings that exceeded market expectations as it continued to benefit from a favorable refining market, driven by continued strong distillate margins and widened crude spreads. Adjusted earnings increased to $3.2 billion during the first quarter from $988 million the year before.

Valero remains well positioned for almost any market environment thanks to its high-quality refining assets and their location, which affords it greater feedstock flexibility. Historically, Valero has held an advantage thanks to its system of 14 refineries that is more complex than competitors', allowing it to process lower-quality feedstock into a high-value product. With the emergence of domestic light crude discounts it pivoted to processing greater amounts of high-quality discounted domestic crude by substituting domestic for imported crude, constructing additional light crude processing capacity and investing in transportation infrastructure.

Valero reported fourth-quarter earnings that exceeded market expectations as it continued to benefit from a favorable refining market, driven by continued strong distillate margins and widened crude spreads. Adjusted earnings increased to $3.2 billion during the first quarter from to $988 million the year before.

Valero remains well positioned for almost any market environment thanks to its high-quality refining assets and their location, which affords it greater feedstock flexibility. Historically, Valero has held an advantage thanks to its system of 14 refineries that is more complex than competitors', allowing it to process lower-quality feedstock into a high-value product. With the emergence of domestic light crude discounts it pivoted to processing greater amounts of high-quality discounted domestic crude by substituting domestic for imported crude, constructing additional light crude processing capacity and investing in transportation infrastructure.

Valero reported third-quarter earnings that once again exceed already high market expectations as it continued to capitalize on a favorable refining market, driven by continued strong distillate margins and widened crude spreads. Adjusted earnings increased to $2.8 billion during the first quarter from $545 million the year before.

Second-quarter refining results produced a round of record profits after margins soared during the quarter. Although that will probably prove a peak as margins have since softened on concerns about weakening demand, they remain at relatively high levels, implying that strong, above-midcycle profits will continue. Refiners have been focused on reducing debt to prepandemic levels and have largely done so, thanks to the strong market. As such, we expect shareholder returns to increase in the second half of the year and stay robust into 2023 as the refining market remains strong.

Valero remains well positioned for almost any market environment thanks to its high-quality refining assets and their location, which affords it greater feedstock flexibility. Historically, Valero has held an advantage thanks to its system of 14 refineries that is more complex than competitors', allowing it to process lower-quality feedstock into a high-value product. With the emergence of domestic light crude discounts it pivoted to processing greater amounts of high-quality discounted domestic crude by substituting domestic for imported crude, constructing additional light crude processing capacity and investing in transportation infrastructure.

Valero reported second-quarter earnings that exceeded already-high market expectations thanks to a strong refining performance. Adjusted earnings increased to $4.6 billion from $260 million the year before.

Valero reported first-quarter earnings that exceeded market expectations, thanks to strong refining performance. It reported adjusted earnings of $944 million during the first quarter compared with a net adjusted loss of $666 million the year before.

Valero remains well positioned for almost any market environment thanks to its high-quality refining assets and their location, which affords it greater feedstock flexibility. Historically, Valero has held an advantage thanks to its system of 14 refineries that is more complex than competitors', allowing it to process lower-quality feedstock into a high-value product. With the emergence of domestic light crude discounts it pivoted to processing greater amounts of high-quality discounted domestic crude by substituting domestic for imported crude, constructing additional light crude processing capacity and investing in transportation infrastructure.

We have increased our fair value estimates for the independent refiners under our coverage. After our update, HF Sinclair trades at the largest discount at 0.92 price/fair value, followed by Phillips 66 (0.93), Marathon Petroleum (1.05), and then Valero (1.16). Shares have performed strongly, up an average of 30% year to date given strong demand and improved margins. U.S. refiners have been a beneficiary of the fallout from the Russian invasion of Ukraine as restrictions on Russian crude and product exports have resulted in tight global product inventories, particularly distillate. Also, higher global natural gas prices, a key input to the refining process, have improved U.S. refiners’ relative competitiveness even as domestic natural gas prices have soared to their highest level in almost 14 years. Operating cost is relative and we expect the U.S. to remain at the low end of the cost curve even as it shifts higher globally. Meanwhile, RIN prices have waned since the start of the year, relaxing a headwind of the last few years. Our moat ratings are unchanged.