Valero Energy Corporation (VLO): Time to Catch This Refiner Before It Reaches Fair Value

Investors’ delight

At the current price, shares of Valero Energy carry a TTM yield of 2.02% with a meager payout ratio of 12.18%. With a Free-Cash-Flow yield of 10.15% and cash and cash equivalents of $1.72 billion, Valero Energy can comfortably sustain its annual dividend payouts of $436 million. In fact, there seems to be a lot of room for dividend hikes and there’s a possibility that the cash proceeds of $1.05 billion (or a part of it) could be distributed as one time special dividends.

Furthermore, the company has repurchased 9.7 million of its shares and had $3 billion left under its authorized capital by the end of Q1. At the current price, this accounts to a pending buyback of nearly 75.7 million shares, which should boost its dividend yield to 2.30%.

Final words

In a recent press release, management of Valero Energy Corporation (NYSE:VLO) also announced that 13 of its refineries would be running at a utilization rate of 92.8%. That’s another positive, considering the fact that its refineries are expected to produce between 2.46 million-2.52 million barrels per day for entire Q2.

Keeping all the growth prospects in mind, I firmly believe that Valero Energy is poised for an upside. But, I also believe that Barclay’s price estimate of $72 seems to be a bit far-fetched and that investors should not get too carried away by these numbers. The analyst consensus of several investment research firms suggests that there may 15%-20% upside, which seems more realistic and plausible.

The article Time to Catch This Refiner Before It Reaches Fair Value originally appeared on Fool.com and is written by Piyush Arora.

Piyush Arora has no position in any stocks mentioned. The Motley Fool owns shares of CST Brands. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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