On Tuesday, UBS has increased its price target for Valero Energy (NYSE:VLO) shares, moving it up to $197 from the previous $167, while reiterating a Buy rating for the stock.
The firm's assessment is based on the strong performance of Valero's stock since March 2020, which has seen a 259% increase compared to the S&P Energy sector's 221% rise and the S&P 500's 99% gain.
The firm anticipates that refining margins will remain significantly above the mid-cycle level into 2024. Despite the introduction of new refineries in Mexico and Nigeria, their impact on the global supply in the first half of 2024 is expected to be minimal. This outlook is supported by the year-to-date increase of 27.26% in the Nymex gasoline Crack, with the spot price at $32.85 per barrel.
The U.S. refiners' higher yield of gasoline over diesel is seen as a potential earnings boost, especially as gasoline cracks strengthen relative to diesel, which has remained stable. The recent closure of the Rodeo refinery in late February is set to tighten the West Coast gasoline markets, which is likely to benefit Valero.
Additionally, the shutdown of LyondellBasell's Houston refinery is anticipated to contribute to tighter product markets and increase the supply of heavy sour barrels on the Gulf Coast, further supporting Valero's position.
The firm also notes that recent events, such as reported drone strikes on Russian refining assets in March, which caused them to go offline, are expected to exert upward pressure on crack spreads.
Furthermore, the trading of Syncrude at almost $7 per barrel below the West Texas Intermediate (WTI) crude price is projected to be another earnings tailwind, particularly for refineries in the North Atlantic region and the Quebec refinery, which can utilize up to 50% Canadian crudes.
InvestingPro Insights
Valero Energy (NYSE:VLO) has caught the attention of investors and analysts alike with its robust financial performance and strategic operations. According to InvestingPro data, Valero boasts a substantial market capitalization of $56.02 billion and a very attractive P/E ratio of 6.37, reflecting strong investor confidence in the company’s profitability. This confidence is further supported by the company's impressive return on assets, which stands at 14.75% for the last twelve months as of Q4 2023.
InvestingPro Tips highlight that Valero has been a prominent player in the Oil, Gas & Consumable Fuels industry, with management actively engaging in share buybacks, signaling their belief in the company's value. Furthermore, the company has demonstrated financial resilience with liquid assets that exceed short-term obligations and cash flows that can sufficiently cover interest payments. These tips are particularly pertinent to investors looking to gauge the company's financial health and operational stability.
For those interested in a deeper dive into Valero's investment potential, additional InvestingPro Tips are available, including insights on earnings revisions by analysts and the stock's trading patterns. Readers can gain further perspective on Valero by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes access to more than 10 additional InvestingPro Tips.
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