Leading Oil Refiner's Stock Climbs Despite Market Volatility

Key Points

• Valero Energy is one of the world's largest petroleum refiners, operating 15 refineries in the U.S., U.K., and Canada.
• Valero Energy is also one of the largest ethanol producers in the world, operating 12 plants.
• Valero Energy stock trades at 12x forward earnings and pays a 2.69% annual dividend rate.

Oil refiner and renewable fuels producer Valero Energy Co. NYSE: VLO plays an essential role in the transportation industry. Its core business of petroleum refining enables gas-powered automobiles, trucks, ships, and planes to operate as they convert crude oil into refined petroleum products like gasoline, diesel, and jet fuel. The company has also evolved its business to include renewable fuel production, including ethanol and renewable diesel, through its Diamond Green Diesel joint venture.

Valero operates in the oil/energy sector, competing with other oil refineries and producers like Marathon Oil Co. NYSE: MRO, PBF Energy Inc. NYSE: PBF, and Phillips 66 NYSE: PSX.

The Business of Refining Petroleum

Valero is one of the largest independent oil refineries in the world. Its primary job is to convert crude oil into gasoline, diesel fuel, and jet fuel. It operates 15 refineries located throughout the U.S., U.K. and Canada. The refined fuels are marketed through bulk and wholesale networks and distributed through terminals and 3,000 miles of active pipelines. The company has over 130 million barrels of storage and the capacity to process up to 3.2 million barrels daily. 

Valero’s Renewable Fuel Production and Other Businesses

Valero operates in three segments: Refining, Renewable Diesel, and Ethanol. Valero operates 12 ethanol plants with the capacity to produce 1.6 billion gallons annually. It's the world's second-largest producer of corn ethanol, which is a gasoline additive. Renewable diesel is a cleaner burning alternative to conventional diesel fuel. It's produced from used cooking oil, animal fats, and other feedstocks. Its joint venture with Diamond Green Diesel Holdings LLC owns two renewable diesel plants in the U.S. Gulf Coast region with the capacity to produce 1.2 billion gallons annually. Ethanol and renewable diesel fuels transition to lower-carbon energy and generate additional revenue streams.

VLO Attempts to Break Out of a Descending Triangle Pattern

The daily candlestick chart for VLO illustrates a descending triangle pattern. This pattern is formed by the upper descending trendline that formed at the $184.79 peak, marking lower highs and converging with the flat-bottom lower trendline support at $144.50. VLO is expected to either break down below the lower trendline or break out above the upper trendline. The daily relative strength index (RSI) is bouncing to the 63-band. Pullback support levels are at $152.50, $144.50, $134.39, and $120.34.

VLO Energy reported Q2 2024 EPS of $2.71, beating consensus estimates by 11 cents. Revenues fell 0.1% YoY to $34.49, beating estimates of $32.97 billion. The company returned $1.4 billion to shareholders through dividends and stock buybacks.

Valero Energy Results By Segment

The Refining segment reported $1.2 billion in income, down from $2.4 billion in the year-ago period. Refining throughput volumes averaged three million barrels per day. While the income was slashed in half from a year ago, the company continues to see strength in the U.S. wholesale system as sales climb back over one million barrels per day in Q2.

The Renewable Diesel segment reported an operating income of $112 million, down from $440 million in the year-ago period. Sales volume averaged 3.5 million gallons daily in the quarter, 908,000 gallons less than in Q2 2023. Operating income was lower due to lower sales volumes from planned maintenance and lower renewable diesel margins.

The Ethanol segment reported an operating income of $105 million, down from $127 million in the year-ago period. Ethanol production volumes averaged 4.5 million gains daily, which was actually 31,000 gallons higher than Q2 2023 levels.

DGD Port Arthur Plant Update

The Sustainable Aviation Fuel (SAF) project at the DGD Port Arthur plant is expected to provide the option to upgrade SAF to nearly 50% of the current 470 million gallons of renewable diesel production capacity. The plant is on track to be operational in Q4 2024. The total cost is $315 million, of which half is attributable to Valero. When the project is complete, it will become one of the largest SAF manufacturers in the world.

VLO Energy analyst ratings and price targets are at MarketBeat. There are 16 Wall Street analyst ratings on VLO stock, comprised of one Strong Buy, 11 Buys, three Holds, and one Sell. The stock has an 8.14% upside to the consensus average price target of $172.07.