Can VLO Continue to Earn From Ongoing Softness in Oil Price?

Core Insights - Valero Energy Corporation (VLO) is a prominent oil and gas refiner that processes both heavy and light crude into refined products, benefiting from the current low crude prices [1][8] - The ongoing decline in crude prices is advantageous for the downstream sector, allowing refiners like VLO to purchase raw materials at lower costs and enhance profit margins [2][8] Group 1: Business Model and Profitability - VLO's business model is strengthened by lower crude prices, with forecasts indicating crude prices will drop to $51.42 per barrel in 2026 from $65.32 in 2025, leading to an expected sharp increase in profit margins [2][8] - The company has maintained a strong track record of returning cash to shareholders, with an average payout ratio of 58% from 2014 to March 2025, excluding 2020, and currently offers a dividend yield of 2.52% [3][8] Group 2: Market Performance and Valuation - Valero's shares have appreciated by 34.2% over the past year, significantly outperforming the industry average of 12% [5] - The company trades at a trailing 12-month enterprise-value-to-EBITDA (EV/EBITDA) ratio of 8.64X, which is higher than the industry average of 4.48X [7] Group 3: Earnings Estimates - The Zacks Consensus Estimate for VLO's 2025 earnings has been revised downward over the past week, with current estimates showing earnings of $9.83 per share for the current year [9][10]