Valero Is Standing On An Ocean Of Oil

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Valero Is Standing On An Ocean Of Oil‘Forbes

Valero Is Standing On An Ocean Of Oil

PORT ARTHUR, TEXAS – SEPT12: The Valero refinery works glow in the dusk light in Port Arthur, Texas. The state of Texas has placed a historical plaque noting that this area is near where the oil boom started in 1901. Port Arthur, Texas is the end of the line for oil that would travel through the proposed Keystone XL Pipeline. (Photo by Michael S. Williamson/The Washington Post via Getty Images

Oil is on the rise and as such we took a look at the energy sector using the CressCap five factor model analysis that identified Valero Energy Corp. (VLO-US) as the one of the top U.S. energy sector equities. The foundation of our recommendations is to identify companies that perform best and worst on the collective basis of value, growth, EPS revisions, profitability, and LT momentum. The CressCap systematic trading model gathers data daily on 6,500 companies globally and assigns academic grades (A – F) for each financial metric. These grades are scored relative to its region/sector. VLO’s sector rank of 5 out of 94 U.S. Energy stocks is reflective of Valero’s robust fundamentals.

Valero Energy Corporation is a manufacturer and marketer of transportation fuels and other petrochemical based products. VLO owns 15 petroleum refineries across the globe in the U.S., Canada, and the U.K, that collectively have a throughput capacity of about 3.1 million barrels per day. The CressCap five factor model has identified several core metrics in which Valero currently grades higher when compared to its peers, highlighted by strong grades in value, profitability and momentum. We believe that Valero’s vigorous fundamentals, combined with the tailwind provided by the advancing price of oil, position the stock for positive returns in the months ahead.

Specifically, a major factor to VLOs value grade is the company’s CF/ROI (cash flow over return on investment), which CressCap grades a B+, as the ratio was reported at 18.69 vs. the sector avg. of 14.82. CF/ROI is a useful metric in the valuation of a company that can help measure the company’s profitability, management’s efficiency as well as its performance against its sector peers. The metric also helps to determine a company’s cash flow returns on investment projects within a certain time frame. VLO’s CF/ROI metric in comparison to its sector peers bodes well for the company’s stock and supports CressCap’s high value grade and sector rank on Valero. While the company’s growth grade seems unimpressive, VLO’s two year historic free cash flow growth rate and two year historic EPS growth rate are attractive. CressCap grades the former a B with a rate of .98% against a sector avg. -37.58%. The latter metric is graded an A- with a growth rate of 14.79% while the sector’s EPS growth rate was -99.64%. In addition, from 2016 to 2017 Valero’s EPS grew by 33.33%. In terms of profitability, Valero reported a net income growth of 77.59%, against the sector avg. 39.74%, that directly improves the company’s ROI. CressCap grades the company’s ROI an A at 13.86% in comparison to the sector avg. of 5.11%.

Per the company’s annual report, from 2016 to 2017, revenue increased by 24.22% to $93.98 billion. Operating income was reported at $3.6 billion in 2017, an increase of $779 million from 2016, and the company’s reported 2017 operating margin was 3.83%.

  • Publisher: Forbes
  • Date: 2018-04-16
  • Author: Richard Trefz Williams
  • Twitter: @forbes
  • Citation: Web link

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Valero Is Standing On An Ocean Of Oil
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