Valero Energy (VLO) is the largest U.S. throughput capacity refiner, focusing on three distinct branches of energy operations: refining, retail, and ethanol. The retail segment of the Valero Corporation is the most visible to the public, but most of their operations occur in the realms of refining and ethanol, as they are doing serious work and consideration for energy resources of the future. Since 2009, Valero has implemented a company-wide operations cost reduction plan. Following an income of $923 million from continuing operations in 2010, Valero has seen relative increases in revenue in quarters since. From 2010 to 2011, the company saw a 116% increase in operating income. While the petroleum world can be sluggish at times, Valero's success can be attributed to a global increase in demand for and dependence on crude and refined oil. In addition, there will be significant growth for the company due to their retail and ethanol segments of business and production.
Valero's profits are determined by the refining margin, meaning that their revenue is susceptible to the fluctuating nature of crude prices, refined prices, and general demand. However, the company benefits from using lower-grade crude oil, which two-thirds of their refining capacity can utilize. This allows them a sense of stability in variable markets. They have a capacity of 2.8 billion barrels of oil per day.
Energy has been one of the few sectors where overall statistics have improved but overall performance has declined - and according to some analysts, this means it is a good, solid time to invest in oil and energy stock. Three important qualities to look for are above-average yields, growth potential, and likely stock price strength. Valero made the cut of being one of the stocks to look out for due to their forward price-to-earnings ratio of less than fifteen times, a yield of least 1% positive estimates for 2012 earnings growth, and earnings growth in 2013 anticipated to be greater than that of 2012. Liquidity was also strong at the end of the March 2012 quarter, with cash and equivalents equaling $1.6 billion. Total availability was approximately $3.84 billion.
Significant growth is anticipated for Valero in 2013 because they intend to end oil imports from Gulf of Mexico refineries in favor of importing heavier grade crude oil from Canada and other locations. This is noteworthy as production of light, sweet oil will continue to dip as crude oil gets moved across the country via barge, pipeline, and rail. There will be a cost advantage to Gulf Coast refiners against crude oil.
Furthermore, it is expected that the Valero Corporation will also continue to see growth due to their ongoing work in the field of using ethanol as an environmentally friendly alternative to petroleum. They own ten biofuel plants, and as a producer of petroleum as well as ethanol, the Valero Corporation will be able to see profits from higher concentrations of ethanol in gasoline (as the EPA intends to increase the amount of allowed ethanol in gasoline). Valero and competitor Marathon Petroleum (MPC) are the only two major fuel refiners that do not have to purchase ethanol from an outside source. Valero also competitors with BP (BP), Chevron (CVX), and Exxon Mobil (XOM).
As previously mentioned, the retail aspect of Valero's operations is the most visible to the public yet the smallest segment of what they do. Small, however, does not mean that this facet is not growing. Back on June 18th, Valero acquired and intends to convert fueling stations called "The Pantry, Inc.", (based out of Cary, North Carolina) into their company. 143 properties will be converted across Alabama, Florida, Georgia, Louisiana, and Mississippi, with 25 sites becoming Valero sites in Florida. Following this acquisition, the Valero Corporation will have over 6,800 retail and branded wholesale sites across the country.
Multiples are inexpensive, and Valero is predicted to gain share as its admission to the export markets will thwart market erosion. At the end of the fourth quarter earning's call, the Valero Corporation's management advised investors to be on the watch for predicted throughput volumes and that lower volumes can be attributed to major turnaround activities that are ongoing in the current quarter. The management of Valero seems to be very in tune with where their company is headed, and they seem to be able to stay on a stable course and well ahead of where the oil and energy markets are headed (especially looking to the future with their work with ethanol).
Valero's 2012 motto is "keeping America moving", and they are doing just that. By the end of the year in 2011, the company saw increases in revenue, operating income, net income, total assets, and total equity. This booming increase has carried over into 2012, where analysts suggest that the company will continue to remain stable and successful. Prices have fluctuated around $24, making the Valero's sale price to be simply excellent. The company's price to earnings ratio is well below that of its peers, and investors should really note the growth potential of Valero. So, in addition to keeping Americans physically moving, the Valero Corporation is holding true to this year's motto and keeping their investors moving on up as well. There is so much potential in Valero as they look towards the future by expanding their retail operations and conducting further research and development in resources that will decrease the world's dependency on oil. They are indeed keeping us all moving.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.