Valero (NYSE:VLO) is up an astonishing 99% since this time last year while the S&P 500 has gained over 20% since May 2012. The strong performance of the energy market recently has helped to fuel the company's growth. Despite the incredible run up that Valero has seen over the past year, the stock is still a buy at these levels.
Valero has solid fundamentals. The stock appears to be cheaper than many of its competitors. Valero's TTM P/E ratio at 7.10 is lower than many of the company's competitors. Exxon Mobil (NYSE:XOM) has a P/E ratio of 9.35 and Chrevon's (NYSE:CVX) P/E ratio is 9.46. The average P/E ratio for the S&P 500 is usually shown as being in the mid teens, so the stock has a lower P/E ratio than its competitors and the market as a whole. In addition, the company reported a great first quarter and Valero beat the estimates. The PEG ratio at .85 could also indicate that the company is undervalued. Also, the P/S looks solid at .16. The stock also has a 2% dividend yield. The company's P/B is 1.22, which is lower than the industry average P/B of 2.1. Valero has a leveraged free cash flow of 1.5 billion.
The news from the company's Q1 conference call was positive. Refining margins were higher in many regions and refining operating costs were lower. The company's retail segment reported strong results for the first quarter. The retail segment reported an increase of $2 million in operating income. The company's ethanol segment increased its operating income $5 million from Q1 2012 mainly due to higher gross margins per gallon. The company also announced that all 10 of its ethanol plants were operating near capacity during Q1 2013. Also, Valero increased its dividend by .25 cents a share in Q1.
Future of Valero
Valero is currently undertaking several projects. The company's plan to spinoff its retail business is progressing well. Valero recently distributed 80% of the shares of CST Brands to Valero shareholders. As a result of the company's improved margins, Valero restarted three of the company's previously shut down ethanol plants. The company is adding new logistics assets and hydrocracker expansions. The price of natural gas is a key driver for the company's energy costs, so this could create uncertainty in the future.
Numerous metrics indicate that Valero is a value stock. In addition, the company beat the estimates for its first quarter. However, there are risks such as volatile energy prices that the company will face in the near term, but the company offers value over the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.