### BUSINESS

Valero Energy Corporation manufactures, markets, and sells transportation fuels and petrochemical products in the United States, Canada, the United Kingdom, Ireland, and internationally. The company operates through three segments: Refining, Renewable Diesel, and Ethanol. It produces conventional, premium, and reformulated gasolines; gasoline meeting the specifications of the California Air Resources Board (CARB); diesel fuels, and low-sulfur and ultra-low-sulfur diesel fuels; CARB diesel; other distillates; jet fuels; blendstocks; and asphalts, petrochemicals, lubricants, and other refined petroleum products, as well as sells lube oils and natural gas liquids.

### INVESTMENT RATING

** With future capital returns forecasted to be above the cost of capital, VLO is expected to continue to be an important Value Builder. **

** Valero Energy has a current Value Trend Rating of A (Highest Rating). **

With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing highly consistent signals. Valero Energy has a good Power Rating of 73 and a good Appreciation Score of 84, leading to the Highest Value Trend Rating.

** Valero Energy’s stock is selling well below targeted value. ** The current stock price of $168.49 compares to targeted value 12 months forward of $477.

Valero Energy’s high appreciation potential results in an appreciation score of 84 (only 16% of the universe has greater appreciation potential.)

** Valero Energy has a Power Rating of 73. ** (This good Power Rating indicates that VLO has a better chance of achieving attractive investment performance over the near to intermediate term than all but 27% of companies in the universe.)

Factors contributing to this good Power Rating include: recent price action has been favorable; and the Petroleum Refining comparison group is in a strong phase currently. An offsetting factor is the trend in VLO’s earnings estimates has been unfavorable in recent months.

### INVESTMENT PROFILE

VLO’s financial strength is above average. Financial strength rating is 64.

** Relative to the S&P 500 Composite, Valero Energy Corp has moderate Value characteristics; its appeal is likely to be to Income-oriented investors; the perception is that VLO is higher risk. ** Relative weaknesses include: high stock price volatility, low historical growth, and high earnings variability. VLO’s valuation is low: moderate dividend yield, low P/E ratio, and low price/book ratio. VLO has high market capitalization.

### CURRENT SIGNALS

** Valero Energy’s current operations are strong. ** Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; rising tax keep rate; and rising leverage.

** Valero Energy’s current technical position is very strong. ** The stock price is in a 10.7 month up move. The stock has appreciated 58.5% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.

### ALERTS

. Positive developments: the consensus estimate for December, 2025 increased significantly, and the consensus estimate for December, 2024 increased significantly. Negative developments: significant quarterly sales deceleration occurred, and significant quarterly earnings deceleration occurred.

The stock is currently rated A.

On 3/25/24, Valero Energy Corp (NYSE: VLO) stock declined slightly by -0.7%, closing at $168.49. However, this decline was accompanied by below average trading volume at 76% of normal. Relative to the market the stock has been strong over the last nine months and has risen 2.9% during the last week.

### CASH FLOW

** In 2023, Valero Energy generated a slight increase in cash of +$466 million (+9%). Sources of cash were slightly larger than uses. ** Cash generated from 2023 EBITDA totaled +$13,758 million. Non-operating sources contributed +$207 million (+2% of EBITDA). Cash taxes consumed -$2,487 million (-18% of EBITDA). Re-investment in the business amounted to -$4,266 million (-31% of EBITDA). On a net basis, debt investors withdrew -$696 million (-5% of EBITDA) while equity investors received -$6,050 million (-44% of EBITDA).

** Valero Energy’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. ** This downtrend was accompanied by stability for the Valero Energy Peer Group. (Since 2020 Non-operating Income, %EBITDA has experienced a very sharp recovery.) In most years, Valero Energy was in the second quartile and third quartile. Currently, Valero Energy is slightly above median at +2% of EBITDA (+$207 million).

** Valero Energy’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. ** This improvement was accompanied by a similar trend for the Valero Energy Peer Group. In most years, Valero Energy was in the top quartile and third quartile. Currently, Valero Energy is lower quartile at -18% of EBITDA (-$2,487 million).

** Valero Energy’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. ** This downtrend was accompanied by a similar trend for the Valero Energy Peer Group. In most years, Valero Energy was in the second quartile and top quartile. Currently, Valero Energy is slightly above median at -31% of EBITDA (-$4,266 million).

** Valero Energy’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. ** This improvement was accompanied by a similar trend for the Valero Energy Peer Group. (Since 2021 Debt Investors, %EBITDA has decelerated very sharply.) In most years, Valero Energy was in the second quartile and third quartile. Currently, Valero Energy is slightly above median at -5% of EBITDA (-$696 million).

** Valero Energy’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. ** This downtrend was accompanied by stability for the Valero Energy Peer Group. In most years, Valero Energy was in the third quartile and second quartile. Currently, Valero Energy is below median at -44% of EBITDA (-$6,050 million).

** Valero Energy’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. ** This improvement was accompanied by stability for the Valero Energy Peer Group. (Since 2020 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, Valero Energy was in the second quartile and top quartile. Currently, Valero Energy is above median at +3% of EBITDA (+$466 million).

** Valero Energy’s Cash, %Revenue has exhibited little to no overall change over the period. ** This stability was accompanied by stability for the Valero Energy Peer Group as well. In most years, Valero Energy was in the third quartile and second quartile. Currently, Valero Energy is at median at +4%.

### PROFITABILITY

** Valero Energy’s return on equity has eroded modestly since 2014. The current level of 33.5% is 1.88X the low for the period and is -31.5% from the high. **

This modest erosion was due to strong negative trend in pretax operating return and very minor positive trend in non-operating factors.

The productivity of Valero Energy’s assets rose over the full period 2014-2023: asset turnover has exhibited a volatile overall uptrend.

More than offsetting this trend, however, pretax margin experienced a volatile overall downtrend although it experienced a very sharp recovery after the 2020 low.

Non-operating factors (income taxes and financial leverage) had a very small positive influence on return on equity.

** Valero Energy’s return on equity is at the upper quartile (33.5%) for the four quarters ended December, 2023. **

Operating performance (pretax return on assets) is upper quartile (18.7%) reflecting asset turnover that is upper quartile (2.20X) and upper quartile pretax margin (8.5%).

Tax “keep” rate (income tax management) is at median (75.1%) resulting in after tax return on assets that is upper quartile.

Financial leverage (leverage) is lower quartile (2.39X).

### GROWTH RATES

There are no significant differences between Valero Energy’s longer term growth and growth in recent years.

Valero Energy’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.

** Annual revenue growth ** has been 7.7% per year.

** Total asset growth ** has been 7.0% per year.

** Annual E.P.S. growth ** has been 10.9% per year.

** Equity growth ** has been 5.1% per year.

** Valero Energy’s consensus growth rate forecast (average of Wall Street analysts) ** is -24.0% — substantially below the average of the historical growth measures.

** Relative to the Valero Energy Peer Group, Valero Energy’s historical growth measures are generally second quartile. ** Revenue growth (7.7%) has been slightly above median. E.P.S. growth (10.9%) has been above median. Equity growth (5.1%) has been slightly above median. Total asset growth (7.0%) has been below median.

** In contrast, consensus growth forecast (-24.0%) is lower quartile. **

### PRICE HISTORY

** Over the full time period, Valero Energy’s stock price performance has been volatile and quite good. ** Between May, 2013 and March, 2024, Valero Energy’s stock price rose +315%; relative to the market, this was a +30% gain. Significant price moves during the period: 1) October, 2020 – May, 2021: +108%; 2) October, 2019 – March, 2020: -53%; and 3) June, 2016 – May, 2018: +138%.

### TOTAL INVESTMENT RETURNS

** Current annual total return performance of 11.0% is at median relative to the S&P 500 Composite. **

In addition to being at median relative to S&P 500 Composite, current annual total return performance through February, 2024 of 11.0% is at median relative to Valero Energy Corp Peer Group.

** Current 5-year total return performance of 16.9% is at the upper quartile relative to the S&P 500 Composite. **

** Through February, 2024, with current 5-year total return of 16.9% relative to S&P 500 Composite at the upper quartile, Valero Energy’s total return performance is at the upper quartile relative to Valero Energy Corp Peer Group. **

### VALUATION BENCHMARKS

** Relative to S&P 500 Composite, VLO’s overall valuation is quite low. ** The highest factor, the price/equity ratio, is near the lower quartile. Ratio of enterprise value/assets is near the lower quartile. Ratio of enterprise value/earnings before interest and taxes is lower quartile. Price/earnings ratio is lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.

** Relative to Valero Energy Peer Group, VLO’s overall valuation is quite low. ** The highest factor, the ratio of enterprise value/assets, is at median. Price/equity ratio is slightly below median. Ratio of enterprise value/revenue is at the lower quartile. Price/earnings ratio is lower quartile. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is lower quartile.

** Valero Energy has a very large value gap compared to the median. ** For VLO to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.49X to 0.61X. If VLO’s ratio of enterprise value/revenue were to rise to 0.61X, its stock price would be higher by $50 to $218.

For VLO to achieve upper quartile valuation relative to the Valero Energy Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.49X to 0.78X. If VLO’s ratio of enterprise value/revenue were to rise to 0.78X, its stock price would increase by $119 from the current level of $168.

### VALUE TARGETS

** With future capital returns forecasted to be above the cost of capital, VLO is expected to continue to be an important Value Builder. **

Valero Energy’s current Price Target of $479 represents a +185% change from the current price of $168.49.

This high appreciation potential results in an appreciation score of 84 (only 16% of the universe has greater appreciation potential.)

Reinforcing this high Appreciation Score of 84, the high Power Rating of 73 contributes to an Value Trend Rating of A.

** Valero Energy’s current Price Target is $479 (-19% from the 2023 Target of $591 but +185% from the 03/25/24 price of $168.49). ** This slight fall in the Target is the result of a +26% increase in the equity base and a -36% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a slight negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a very large positive impact.

** PTR’s return on equity forecast is 12.8% — significantly below our recent forecasts. ** Forecasted return on equity enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is well above the 2021 low of 4%.

** PTR’s growth forecast is 17.0% — substantially above our recent forecasts. ** Forecasted growth enjoyed a dramatic, variable increase between 2015 and 2023. The current forecast is significantly above the 2021 low of 0%.

** PTR’s cost of equity forecast is 7.0% — below recent levels. ** Forecasted cost of equity exhibited a modest, erratic increase between 2015 and 2023. The current forecast is well above the 2021 low of 1.2%.

At Valero Energy’s current price of $168.49, investors are placing a positive value of $64 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 19.0% per year, and a return on equity of 31.9% versus a cost of equity of 13.8%.

PTR’s 2025 Price Target of $479 is based on these forecasts and reflects an estimated value of existing assets of $157 and a value of future investments of $323.

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