Up 64% in this bear market, is Valero Energy still the winner?


what happened

Almost every stock has fallen over the past year. The S&P 500 It peaked on January 3, 2022 and then descended into a bear market, ending the year down 20%.

However, there were a few bright spots last year. Valero Energy (VLO 1.20%) Its stock rose 64.5% from the start of the bear market to the end of the year, according to data provided by S&P Global Market Intelligence. See what’s driving here Refining stock And whether it has the fuel to continue producing winning returns in 2023.

so what

Valero Energy last year capitalized on fundamental improvements in the refining sector. CEO Joe Gorder discussed the catalysts in that company’s third-quarter report, saying, “Refining fundamentals remain strong as product demand through our system exceeds 2019 levels, while global product supply is constrained by capacity reductions and higher natural gas prices in Europe. Higher floor in margins.” setting.”

Those strong market conditions boosted Valero’s earnings and cash flow. The company reported consolidated net income of $2.8 billion, or $7.14 per share, in the third quarter, which was a multiple of the $545 million, or $1.33 per share, generated in the year-ago period.

This gave the company cash flow to strengthen its balance sheet and invest in expanding its operations. Valero reduced its debt by $1.25 billion in the third quarter, pushing its total debt reduction through the second half of 2021 to $3.6 billion.

Meanwhile, it commissioned its third Diamond Green Diesel (DGD 3) project in November last year and was on track to complete its Port Arthur coker project in the first half of this year. DGD 3 will increase annual renewable diesel production by 470 million gallons to 1.2 billion gallons, while the Port Arthur coker project will increase that refinery’s capacity and improve its margins.

what now

Valero’s investment should drive significant earnings growth this year. It expects those and other projects to add $1.2 billion to $1.7 billion to its annual total EBITDA By the end of this year. It has been on pace to grow revenue by 50% over its average in recent years

While the shares have risen sharply over the past year, they still trade at cheap valuations due to expected earnings growth. It means the company believes its stock represents one The best value proposition in the S&P 500 today.

If refining conditions remain strong and Valero’s projects deliver expected earnings growth, those catalysts could fuel the stock to continue generating winning returns.

Matthew DiLalo has no position in any of the stocks mentioned. Motley Fool has no position in any of the stocks mentioned. Motley Fool has a revealing policy.


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