Valero Energy CorporationVLO

Morningstar Rating

Stock Research and Analysis

by Allen Good

Valero's ability to utilize cheaper, heavy sour crude oil as a feedstock for its refineries offers some defense against shrinking margins during a difficult operating environment for refinery operators. We expect current market conditions to continue, Read more

Bulls Say

Valero's refineries have the capability to process cheap, heavy crude oil. The firm will continue to exploit the discount to light crude and deliver competitive margins.

Valero has authorization to buy back up to $3.5 billion worth of stock, which provides support for the shares and demonstrates management's belief in the company.

Despite weakening gasoline demand, little capacity has been added to the U.S. refining system. Any natural disaster, fall in oil prices, extended refinery shutdown, or economic recovery could bolster demand and margins.

With retail outlets, Valero has some power to pass along costs through its own retail network. It also is not totally reliant on the wholesale market to distribute its refined product. Read more

Bears Say

The outlook for the U.S. economy remains bleak, and demand for refined products continues to decline, weighing on margins.

Last summer's high gasoline prices generated political support for alternative fuels and transportation solutions that may make them economically viable, permanently destroying gasoline demand and damaging refiners' long-term business prospects.

Unlike its larger integrated competitors, Valero does not produce crude oil, making it dependent on its suppliers for crude.

Diesel margins, which were at record levels, have suffered of late with slowing economic activity and record-high inventories.

The recent narrowing of the heavy crude oil differentials has negated the advantage of Valero's high-complexity refineries. Decreased heavy oil production from Saudi Arabia and Mexico may keep the differentials narrow in the future. Read more

Strategy

Valero's strategy is to divest its refineries that are reliant on light crude as feedstock or do not serve attractive markets and invest the proceeds in upgrading the remaining refineries. Attempts to Read more

Management

William Klesse has been CEO since the end of 2005 and added the role of chairman in January 2007. He previously served as COO and executive vice president of refining and commercial operations. Valero's compensation structure for executives is similar Read more

Profile

Valero is an energy company engaged in the refining and retail marketing of refined petroleum products. As the largest independent refinery in the United States, Valero Read more

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