Last Update 12 Mar 26

Fair value Increased 2.27%

VLO: Bearish Crude Outlook Will Constrain Future Multiple Despite Refining Support

Analysts have nudged their average price target for Valero higher, with our fair value estimate moving from $198.22 to $202.72 as they factor in updated views on future revenue growth and profitability, as well as a slightly lower assumed future P/E multiple.

Analyst Commentary

Recent Street research on Valero reflects a mix of optimism and caution, with several firms adjusting their price targets and at least one major bank removing the stock from a high conviction list. For you as an investor, the key themes cluster around how resilient refining economics might be, how crude market views feed into sector performance, and what that means for valuation support.

Bullish Takeaways

Bullish analysts have raised their price targets by a wide range of amounts, which signals confidence that Valero's execution and earnings power can still justify higher valuation levels than previously assumed.
Some bullish calls frame the refining market beyond 2025 as potentially stronger than 2025, anchored on expectations of tighter supply and demand conditions and supportive crude differentials, which they see as a tailwind for margins and cash generation.
Multiple target increases clustered around the same period indicate that optimistic analysts see enough consistency in the fundamental story to tweak their models in the same direction, even if they differ on the exact upside.
These moves have contributed to the higher average fair value estimate in our model, suggesting that, in aggregate, optimistic analysts still view the risk or reward trade off as reasonable around current assumptions.

Bearish Takeaways

Piper Sandler lowered its price target from US$223 to US$217, which shows that at least some analysts are trimming expectations, even while keeping a positive rating on the shares.
That same research flags a bearish crude outlook that could make it harder for refiners as a group to outperform the broader market, which may cap how much investors are willing to pay on a P/E basis, even if company specific execution remains solid.
Goldman Sachs removed Valero from its US Conviction List, which may reflect a view that the risk or reward profile is now more balanced and that the stock no longer stands out versus peers on upside potential.
Across the more cautious commentary, a common thread is that sector level headwinds, including crude price views and relative sector performance, could limit multiple expansion, even if refining fundamentals hold up.

What’s in the News

Valero is planning to buy heavy crude directly from Venezuela's state oil company PDVSA later in the year, after it reviews the condition of Venezuela's loading infrastructure, following similar moves by Phillips 66 and Citgo Petroleum to source crude without intermediaries (Reuters).
Valero's Board of Directors approved a change in the regular quarterly cash dividend on common stock to $1.20 per share, payable on March 9, 2026, to shareholders of record on February 5, 2026, which sets the annualized cash dividend rate at $4.80 per share.

Valuation Changes

Fair Value: Our estimate has risen slightly from $198.22 to $202.72 per share, reflecting updated assumptions in the model.
Discount Rate: Held steady at 6.98%, so the required return used to discount future cash flows is unchanged.
Revenue Growth: The long term revenue growth input has increased from 1.80% to 3.74%, indicating a higher assumed top line growth rate in the updated model.
Profit Margin: Essentially unchanged at about 3.17%, suggesting no material shift in the profitability assumption.
Future P/E: The assumed future P/E multiple has been trimmed from 16.60x to 15.70x, implying a slightly lower valuation multiple applied to projected earnings.

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Key Takeaways

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.

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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