Hold Valero For Long-Term Gains Or Buy Now
One of the most appealing attributes for Valero (VLO) derives from the difference between a refinery organization and the traditional E&P. While domestic E&Ps like Chesapeake (CHK) are suffering from low natural gas prices, refineries like Valero are prospering. The crack spread resulting from the lowered input cost from declining natural gas prices and the increasing prices for gasoline are creating improved earnings for refineries like Valero. Natural gas remaining at record lows and gasoline remaining at record highs creates optimum earning potential for Valero. As long as this dynamic holds fast, it’s reasonable for investors to expect upticks and increased activity on refinery stocks.
Occidental Petroleum (OXY), Phillips 66 (PSX), Murphy Oil (MUR), and HollyFrontier (HFC) are the firms most comparable to Valero Energy. Valero and Occidental’s price are around 10.5 times earnings while HollyFrontier and Phillips 66 are around 5.5 times earnings. Valero’s price is around 0.12 times sales and 0.98 times its book value – these are the lowest price ratios among these firms. Valero’s $2.91 EPS is the lowest among these refinery firms; its EPS has increased 126% in 2012 and is projected to increase 6.2% in 2013. Valero’s sales have increased 7.5% over the past 5 years. Both Valero and Phillips 66 current ratios are around 1.3 and their debt-to-equity ratios are around 0.42. Valero’s annualized dividend is around $0.70 per share.
Valero’s float short is around 1.9% and its 1.1 short ratio is the lowest among these firms. Valero’s ROE is around 10.1%, its operating margin is around 2.3%, and its profit margin is around 2.8%. It has the lowest operating and profit margins by at least 120 bps, and only Murphy Oil’s 8.9% ROE is lower than Valero Energy. To continue reading, click here.