VLO: Ongoing Capital Returns And Margin Resilience Will Shape Near-Term Performance

Valero Energy's analyst price target has increased from $182.22 to $185.83 per share, as analysts highlight stronger operating performance, robust refinery margins, and ongoing optimism in earnings and capital returns.

Analyst Commentary

Analysts remain largely constructive on Valero Energy, emphasizing multiple factors supporting a positive outlook. However, a few concerns and headwinds remain in view as the sector navigates market dynamics and evolving industry trends.

Bullish Takeaways

Bullish analysts point to Valero's highly complex refineries, which are able to process less expensive crude oils and efficiently convert them into premium products such as diesel and jet fuel. This supports growth in operating margins and earnings per share.
Recent price target increases reflect confidence in Valero's capital return strategy. Several firms expect Valero to remain among industry leaders in dividend growth across a variety of market conditions.
Margin strength continues to outperform expectations, with refining product markets remaining tight both in the near term and into 2026. This implies further upside potential for earnings.
Strong quarterly results, including sizable earnings beats, along with positive management commentary, have reinforced views that Valero can sustain current profitability and execute well on its operational plans.

Bearish Takeaways

Bearish analysts caution that demand indicators are becoming softer, which could challenge refining utilization rates and future growth assumptions.
The sector continues to face ongoing debate regarding supply and demand balances, exposing earnings to potential volatility if market conditions shift unexpectedly.
Seasonal and valuation-driven factors may drive short-term swings in margins, which tempers some enthusiasm around recent operational strength.
While current forecasts are optimistic, some projections for quarterly earnings remain slightly below consensus. This highlights ongoing market uncertainty.

What's in the News

Wells Fargo initiated coverage of Valero Energy with an Overweight rating and a $216 price target. The report cites return of capital direction and leadership in dividend growth as key drivers (Wells Fargo periodical).
Valero Energy announced that Homer Bhullar has been appointed as the next Chief Financial Officer, effective January 1, 2026. He will succeed Jason Fraser upon his retirement (Key Developments).
The company completed a major share buyback tranche, repurchasing over 5.6 million shares for $920.61 million during the third quarter of 2025. In total, over 9.5% of shares outstanding have been retired since September 2023 (Key Developments).

Valuation Changes

Consensus Analyst Price Target has risen slightly to $185.83 per share, up from $182.22 previously.
Discount Rate has edged down marginally from 6.96% to 6.96%.
Revenue Growth is now expected at -0.34%, which is an improvement from the previous -0.36% estimate.
Net Profit Margin has increased modestly to 3.42%, up from 3.41%.
Future P/E ratio has risen to 15.89x, compared to the prior estimate of 15.66x.

Strategic investments and a strong balance sheet may boost future earnings through growth and higher-value product yields.
Shareholder returns could improve from increased dividends and buybacks, while renewable diesel segment earnings benefit from market factors.
Asset impairments, renewable segment struggles, operational cost pressures, and regulatory uncertainties threaten Valero's financial stability and profitability.

Catalysts

About Valero Energy

Manufactures, markets, and sells petroleum-based and low-carbon liquid transportation fuels and petrochemical products in the United States, Canada, the United Kingdom, Ireland, Latin America, Mexico, Peru, and internationally.What are the underlying business or industry changes driving this perspective?

The SEC unit optimization project at St. Charles, expected to start up in 2026, is projected to increase the yield of high-value products, potentially boosting future revenues and earnings.
Anticipated tight product supply and demand balances, with low product inventories, are expected to support refining fundamentals during the driving season, possibly enhancing refining margins and revenues.
A strong balance sheet and $5.3 billion of available liquidity provide Valero with operational and financial flexibility to invest in growth and optimization projects, potentially improving future earnings.
The potential for higher D4 RIN prices and an increase in the RIN obligation could positively impact the renewable diesel segment's earnings by improving margins.
Continued commitment to capital discipline and shareholder returns, such as the 6% increase in the quarterly cash dividend, could support per-share earnings growth through ongoing share buybacks.

Valero Energy Earnings and Revenue Growth

Valero Energy Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Valero Energy's revenue will decrease by 0.2% annually over the next 3 years.
Analysts assume that profit margins will increase from 0.6% today to 3.3% in 3 years time.
Analysts expect earnings to reach $3.8 billion (and earnings per share of $13.76) by about September 2028, up from $760.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $4.9 billion in earnings, and the most bearish expecting $2.3 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.8x on those 2028 earnings, down from 66.1x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.6x.
Analysts expect the number of shares outstanding to decline by 1.87% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.14%, as per the Simply Wall St company report.

Valero Energy Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

A significant net loss attributed to asset impairments, particularly related to West Coast operations, could negatively impact future earnings and financial health.
The renewable diesel segment struggled with high operating losses, reflecting challenges in maintaining profitability amidst shifting regulatory and market dynamics, thereby affecting net margins.
With the intent to close the Benicia refinery due to stringent regulations, there could be substantial costs related to plant closure, negatively affecting cash flow and future earnings.
Uncertainty around policy changes, such as potential increases to RIN obligations and California LCFS adjustments, introduces risk to revenue stability in the renewable segment.
High operational cost pressures, particularly from maintenance and potential fluctuations in natural gas prices, may constrain margin improvements, thus impacting overall profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $158.333 for Valero Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $181.0, and the most bearish reporting a price target of just $133.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $116.8 billion, earnings will come to $3.8 billion, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 7.1%.
Given the current share price of $161.83, the analyst price target of $158.33 is 2.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

VLO: Dividend Growth And Refining Margins Will Drive Performance Into 2026