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Valero Energy Corp VLO

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Stewardship

PREMIUM

Valero Reports Sharp Drop in Q2 Earnings, but Worse Likely Behind It

Allen Good, CFA Sector Strategist

Analyst Note

| Allen Good, CFA |

Valero Energy reported sharply weaker second-quarter earnings, but the worse of the fallout from the COVID-19 pandemic is probably behind it as demand begins what is likely to be a long, slow recovery. Net income was $1.3 billion during the quarter compared with $612 million a year ago. However, those figures include the benefit of a $1.8 billion lower cost of market inventory adjustment during the quarter. Excluding that benefit, adjusted second-quarter earnings fell to a loss of $504 million from $665 million last year due to weakness across every segment. Refining adjusted operating income fell to a loss of $383 million from earnings of $1.0 billion last year on narrower margin realizations and lower throughput volumes in every region. Renewable diesel adjusted operating income fell to $129 million from $145 million last year on weaker margins. Ethanol adjusted operating income fell to a loss of $20 million from earnings of $8 million last year on lower margins and a sharp drop in volumes. During the quarter, Valero returned $400 million to shareholders in dividends and did not repurchase any shares, but it has paid out 96% of adjusted operating cash flow year to date. Our fair value estimate and narrow moat rating are unchanged.

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Company Profile

Business Description

Valero Energy is one of the largest independent refiners in the United States. It operates 14 refineries with a total throughput capacity of 3.1 million barrels a day in the United States, Canada, and the United Kingdom. Valero also owns 14 ethanol plants with capacity of 1.7 billion gallons of ethanol a year and holds a 50% stake in Diamond Green Diesel, which has capacity to produce 275 million gallons per year of renewable diesel.

Contact
One Valero Way
San Antonio, TX, 78249
T +1 210 345-2000
Sector Energy
Industry Oil & Gas Refining & Marketing
Most Recent Earnings Jun 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Hard Assets
Employees 10,222

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