Is It Too Late to Consider Valero After Its 45% 2025 Surge?

• If you are wondering whether Valero Energy is still a smart buy after its big run, or whether you would be catching the stock at the wrong end of the cycle, this breakdown is designed to cut through the noise and focus squarely on value.
• The stock has climbed 2.3% over the last week, 4.0% over the last month, and is now up about 45.0% year to date, with a hefty 264.3% gain over five years reshaping how the market views its long term potential.
• Recently, investors have been digesting headlines around refining margins, shifts in fuel demand, and policy developments that could affect US refiners like Valero. All of these factors feed into expectations for future cash flows and risk. At the same time, ongoing commentary about energy transition policies and refining capacity has kept sentiment active around whether current profitability is sustainable.
• Despite that backdrop, Valero Energy only scores 2 out of 6 on our valuation checks. We will unpack what different valuation methods say about the stock now, and then discuss an even more useful way to think about valuation at the end of this article.

Valero Energy scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Valero Energy Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business is worth today by projecting the cash it can generate in the future and discounting those cash flows back into today’s dollars.

For Valero Energy, the latest twelve month Free Cash Flow is about $4.0 billion. Analysts provide several years of forecasts, and then Simply Wall St extrapolates further, resulting in projected Free Cash Flow of roughly $4.7 billion in 2035. The model used here is a 2 Stage Free Cash Flow to Equity approach, which assumes an initial forecast period before growth settles into a more stable phase.

On this basis, the DCF model arrives at an intrinsic value of about $321 per share. Compared with the current market price, this implies the shares trade at a 44.4% discount to their estimated fair value, which suggests investors are not fully pricing in Valero’s future cash generation.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Valero Energy is undervalued by 44.4%. Track this in your watchlist or portfolio, or discover 933 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Valero Energy.

Approach 2: Valero Energy Price vs Earnings

For consistently profitable companies like Valero Energy, the Price to Earnings (PE) ratio is a useful shorthand for how much investors are willing to pay for each dollar of current earnings. A higher PE usually reflects expectations of stronger growth or lower perceived risk, while a lower PE often signals more modest growth prospects, higher risk, or cyclical earnings that investors are discounting.

Valero currently trades on a PE of about 36.5x. That is well above the broader Oil and Gas industry average of roughly 13.5x, and also higher than the peer group average of about 26.8x, implying that the market is assigning Valero a premium relative to many refiners. Simply Wall St’s Fair Ratio for Valero is around 23.1x, which is the PE multiple you might expect given its earnings growth profile, profit margins, industry, market size and risk factors.

This Fair Ratio is more informative than a simple comparison with peers or the industry because it explicitly adjusts for company specific drivers such as growth, risk and profitability. Comparing the Fair Ratio of 23.1x with the current 36.5x suggests Valero’s shares are pricing in more optimism than its fundamentals justify on this metric alone.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1440 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Valero Energy Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These are simple stories investors create on Simply Wall St’s Community page that link their view of a company’s future revenue, earnings and margins to a financial forecast and, ultimately, a fair value estimate. That estimate can then be compared with today’s share price to help decide whether to buy or sell. Narratives update dynamically as new information, such as news or earnings, arrives. For example, one Valero investor might build an optimistic Narrative around resilient refining margins, rising dividends and a fair value well above the current price. Another, more cautious investor might focus on regulatory risks, softer demand and thinner long term margins to arrive at a much lower fair value. Both use the same tool to turn their perspective into numbers they can act on.

Do you think there's more to the story for Valero Energy? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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