Valero stock price target lowered to $121 at TD Cowen

On Tuesday, TD Cowen’s analyst Jason Gabelman adjusted the price target for Valero Energy (NYSE:VLO), reducing it to $121.00 from the previous $138.00 while sustaining a Buy rating on the shares. Currently trading at $109, InvestingPro analysis suggests the stock is undervalued, with analyst targets ranging from $124 to $160. Gabelman’s assessment is based on the belief that Valero has the least downside to first-quarter 2025 consensus EBITDA among its large-cap peers. This outlook is partly due to improved quarter-over-quarter U.S. Gulf Coast (USGC) refining margins. The company’s last twelve months EBITDA stands at $6.62 billion, with InvestingPro data showing strong financial health metrics and a robust EV/EBITDA ratio of 6.6x.

Valero’s refining EBITDA is projected to increase by $60 million quarter-over-quarter, with an approximate 80% capture rate. However, this represents a 5% decrease from the previous quarter, primarily due to elevated maintenance costs. Additionally, the forecast for Diamond Green Diesel (DGD) margins is set at $0.15 per gallon, which includes a 75% capture on an estimated $0.70 per gallon Production Tax Credit ( PTC (NASDAQ:PTC)).

The analyst also anticipates that Valero will continue its share repurchase program, with expectations to buy back $0.4 billion worth of shares in the first quarter of 2025, maintaining the prior estimate. However, the forecast for the full year of 2025 has been reduced by $0.3 billion to $1.6 billion, and the 2026 estimate has been decreased by $0.5 billion to $1.8 billion. InvestingPro highlights that management has been aggressively buying back shares, complementing its impressive 37-year track record of consecutive dividend payments, currently yielding 4.1%. Despite these adjustments, Valero’s anticipated 9% shareholder return yield is still considered the highest in its peer group, with the exception of Delek US Holdings (NYSE:DK).

Gabelman highlights Valero’s competitive advantages, noting the company’s position as having the lowest cost profile among its peers and a concentration in the USGC that limits earnings volatility. These factors are deemed to provide an edge in a potentially weaker market environment. Valero’s strategic focus and financial actions reflect its commitment to delivering value to its shareholders while navigating the dynamic energy market. With a current ratio of 1.53 and moderate debt levels, the company maintains strong financial flexibility. For deeper insights into Valero’s financial health and growth potential, investors can access comprehensive analysis and additional ProTips through the detailed Pro Research Report available on InvestingPro.

In other recent news, Valero Energy Corporation announced the issuance of $650 million in senior notes due in 2030, with an interest rate of 5.150%. This financial move, finalized with several major underwriters, marks a strategic effort in managing the company’s capital structure. On the earnings front, Mizuho (NYSE:MFG) Securities has projected that Valero’s first-quarter earnings may fall short of market expectations, primarily due to challenges in the renewable diesel segment. Despite this, Valero’s refining segment is expected to perform positively, with higher crack spreads offsetting some challenges. Meanwhile, UBS has adjusted its first-quarter earnings estimate for Valero, lowering the EPS forecast due to underperformance in the refining and marketing division. BMO Capital Markets and Mizuho Securities have both reiterated their positive ratings on Valero, with price targets of $145 and $158, respectively, citing the company’s strong operational fundamentals and robust balance sheet. UBS, maintaining a Buy rating with a $160 price target, anticipates a potential industry recovery later in the year, supported by factors like low diesel inventories and logistical challenges at competing refineries. These developments reflect the varied analyst perspectives and strategic financial decisions surrounding Valero Energy as it navigates current market conditions.

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