Valero Energy Q1 2023 Earnings Analysis-Analysts Cut Target Forecasts

VLO Ratings by Stock Target Advisor


**Solid Financial Performance in Q1 2023**

Valero Energy reported strong Q1 2023 financial results, with net income attributable to stockholders of $905 million, compared to a net loss of $704 million in Q1 2021. Refining margins were supported by strong product demand and low global inventories, contributing to a favorable refining environment. The ethanol segment also generated positive operating income, and the renewable diesel business saw steady demand.

**Growth in Low Carbon Segments**

Valero is expanding its low carbon fuel operations, with the DGD 3 renewable diesel project expected to be operational in Q4 2022, increasing total annual capacity to 1.2 billion gallons of renewable diesel and 50 million gallons of renewable naphtha. The company is also progressing on its large-scale carbon sequestration project, with start-up activities expected in late 2024. Valero continues to explore opportunities in sustainable aviation fuel, renewable hydrogen, and additional renewable naphtha and carbon sequestration projects.

**Financial Commitment and Stockholder Returns**

Valero remains dedicated to maintaining a strong balance sheet and an investment-grade credit rating. The company has reduced its long-term debt by $2 billion over six months through debt reduction and refinancing transactions. Valero continues to prioritize stockholder returns, with an annual target payout ratio of 40% to 50%, and returned $545 million to stockholders in Q1 2023 through dividends and stock buybacks.

**Positive Outlook for Refining Segment**

The fundamentals driving strong Q1 2023 results continue to support a positive outlook for the refining segment, with product demand expected to remain healthy and global inventories low. The natural gas price disparity between the U.S. and Europe provides a structural margin advantage for U.S. refineries, especially those in the Gulf Coast.

**Stock Target Advisor’s Analysis of Valero Energy Corporation Stock**

The average analyst target price for Valero Energy Corporation over the next 12 months is $156.53, with a strong buy rating from analysts. Stock Target Advisor’s own stock analysis of Valero Energy Corporation is slightly bullish, based on 6 positive signals and 3 negative signals. As of the last closing, Valero’s stock price was $114.64, with recent changes of -8.31% over the past week, -17.24% over the past month, and -0.77% over the last year.

**Positive Aspects**

Valero has a high market capitalization, making it a more stable company among its sector peers. The stock is trading at a low price-to-earnings ratio compared to its peers, which may indicate it is underpriced. Valero’s management has delivered better return on invested capital and return on assets than its peers in recent quarters. Additionally, the company had positive total cash flow and free cash flow in the most recent four quarters.

**Negative Aspects**

The stock is trading high compared to its peers on a price-to-book value basis and on a price-to-cash flow basis, which may indicate overpricing. Valero has also shown below median revenue growth in the previous five years compared to its sector.

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