Valero Energy's Insane Valuation

It is pretty easy to find ridiculously low stock valuations in today's market, but here's an example of the value present in the current bear market. Valero Energy (VLO) yesterday morning reported third quarter earnings of $1.86 per share, well above estimates. (Call Transcript)

The stock closed Monday at $15 per share, which gives it a P/E ratio of 8 based solely on one quarter's worth of earnings! Insane.

Full Disclosure: Peridot was long VLO at the time of writing, but positions may change at any time

Comments

[Lee 99:]

Is that how P/E is calculated? Why are you writing for SA? Have you noted other energy stock (plus many more sectors) valuations? That's insane.

2008 Oct 29 07:09 AM

[GMI1982:]

It's due to the revenue and profit cuts forecasted in 2009 - VLO is looking at 35% reduction in revenues.... pretty steep. But this is the time when folks step-up and realize significant returns over the next 2-3 years.

2008 Oct 29 08:32 AM

[Diegojames:]

A utility company is rebuilding the receiving LNG terminals in
Texas , so something could be brewing with VAL. It could be a take over to build a LNG , CNG outlet in the US. Remember Valero owns service stations in the state with the most cars,thats California - my beautiful sunny state, and has a lot of refining assets and terminals in large volume ports.
Diego
Long Valero

2008 Oct 29 09:02 AM

[doublebogey:]

And people wonder why there have been no new refineries built lately. Dont hear any bail outs being proposed for the refiners now, but when the crack spread goes crazy for a quarter or two you will hear calls for windfall profits taxes.

2008 Oct 29 09:03 AM

[epeon:]

One issue that is never mentioned is that this great cashflow never really goes to the stockholder. With that much earnings you would think that valero would have a decent dividend. Yet, it never does. I always look for a decent dividend to make a stock a core ownership in my portfolio. VLO does not have that. They simply don't pass the wealth to their stockholders.

2008 Oct 29 09:10 AM

[stay strong:]

To epeon, at $17 the dividend yield is every attractive (over 4%), so that's a great return!!

To GMI, if you take out 30% of earnings next year, you still get an annual P/E ratio of under 10 which is very low.

CCL: VLO is very attractive

2008 Oct 29 03:49 PM

[stay strong:]

Well at $17, VLO has a dividend yield of over 5% which is a great return

if earnings go down by 30% next year, P/E will still be under 10

Conclusion: VLO under $20 is a steal

2008 Oct 29 03:51 PM

[Owen:]

Among the 18 analysts following VLO, the average earnings estimate for 2009 is $4.29 per share, giving it a P/E of 4. But even if the company makes only one third of what they earned in 2007--that's right, 67% lower, below the most pessimistic estimate--they're still at a P/E of under 7.

But even more surprising is the fact that VLO trades at 40% below its tangible net assets. They have $22 billion ($42 a share) in refining equipment, not even counting inventories. If the company were to liquidate tomorrow, shareholders would get over $35 a share. Companies like XOM or BP would be delighted to buy those refineries at carrying cost.


Disclosure: Long VLO.

2008 Oct 29 05:19 PM

[bbowen7:]

I like that they have been selling assets over the past year, and that their capital spending program seems to be under control. No solar panels or windmills; just a basic cog in America's essential infrastructure. Don't know how bad they have been burned on oil/gasoline hedges; but that's a short term consideration. Great numbers - from a holder for the past 8 years.

2008 Oct 29 08:18 PM

[DKON:]

Agree with you wholeheartedly. I think that windfall profits are absurd. But then again I also think that government bailouts are absurd. Bailouts laden with pork, outrageously absurd!!!


On Oct 29 09:03 AM doublebogey wrote:

> And people wonder why there have been no new refineries built lately.
> Dont hear any bail outs being proposed for the refiners now, but
> when the crack spread goes crazy for a quarter or two you will hear
> calls for windfall profits taxes.

2008 Nov 03 03:16 PM