VLO - Valero: Gasoline Prices Will Jump In April But I Won't Jump On This Rally (Rating Downgrade)
2024-03-18 03:04:37 ET
Summary
- Due to an increase in crack spreads, Valero's stock has delivered a 50% total return, outperforming the S&P 500.
- Refinery capacity shortages and lack of competition benefit existing refineries like Valero, increasing profits.
- Valero's valuation must be relatively low to be reasonable, as its EPS is expected to decline in the long term as EV adoption accelerates.
- I expect VLO to earn a $20+ EPS in 2024 and beyond, but an 8X "P/E" may not necessarily be low enough, given VLO's core asset depreciation.
- Gasoline prices will rise soon as production falters with maintenance and labor issues, but the crack-spread spike may be short-lived.
Last June, I published " Valero: US Gasoline Prices Will Soar This Decade As More Refineries Shutter ," which explained my bullish outlook for Valero ( VLO ). I believed VLO would rise in value at that time due to a prolonged increase in "crack spreads," or the difference between gasoline and oil prices. My long-term view is that the spread between refined oil products (gasoline) and crude oil will remain high due to a general shortage of refinery capacity compared to demand in the US. That gap stems from decades of underinvestment in both capital and labor....
Valero: Gasoline Prices Will Jump In April, But I Won't Jump On This Rally (Rating Downgrade)