VLO

We rate VALERO ENERGY CORP/TX (VLO) as a Hold with a composite score of 56.7/100 at a current price of $199.32. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in stability (70th percentile) and value (63th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (43/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

VALERO ENERGY CORP/TX holds a top-quartile position (#0 of 50) within the Mining sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 56.7/100 places it at rank #1066 in our full 7,333-stock universe. With a $52.6B market capitalization, VALERO ENERGY CORP/TX operates at meaningful scale within the Mining sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue contraction of -7% combined with momentum at the 49th percentile paints a cautious picture of the near-term business outlook. The market appears to be pricing in continued challenges, and a catalyst for reversal is not clearly visible from current data.

The margin cascade tells an important story: gross margins of 3% (-39.8pp vs sector) narrow to operating margins of 2% (-10.6pp vs sector) and net margins of 1.1%, yielding a gross-to-net conversion rate of 34%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $199.32, VALERO ENERGY CORP/TX is trading near fair value based on current fundamentals. Our value factor score of 63/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 41.7x (a 203% premium to the sector median of 13.7x), EV/EBITDA of 28.2x (at a premium), P/B of 2.3x, P/S of 0.5x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Medium uncertainty rating to VALERO ENERGY CORP/TX. The stock presents a balanced risk profile: significant leverage (119% debt-to-equity) and elevated valuation multiple (P/E 41.7x) that leaves limited margin for error. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: significant leverage (119% debt-to-equity); elevated valuation multiple (P/E 41.7x) that leaves limited margin for error; the combination of leverage (119% D/E) and thin margins (1.1% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 70th percentile and quality factor at the 54th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (70th percentile) suggests predictable business dynamics; large-cap scale ($52.6B) provides resilience; a 2.64% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate VALERO ENERGY CORP/TX's capital allocation as Poor. Key concerns include suboptimal returns on capital. Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — VALERO ENERGY CORP/TX significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, VALERO ENERGY CORP/TX receives a Hold rating with a composite score of 56.7/100 (rank #1066 of 7,333). Our quantitative framework assigns a Narrow Moat (43/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 57/100.

Our analysis supports a neutral stance on VALERO ENERGY CORP/TX. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.