• If you are wondering whether Valero Energy's strong run has left the stock overpriced or if there is still value on the table, this article breaks down what the current price might actually be telling you.
• Valero Energy's share price closed at US$236.35, with returns of 43.0% year to date and 99.9% over the last year, even though the stock recorded a 6.4% decline over the past week and a 6.0% decline over the past month.
• Recent commentary around Valero Energy has focused on its share price performance and how investors are reassessing the balance between strong past returns and current risks. In this context, valuation becomes an important question for anyone considering the stock today.
• Valero Energy currently has a valuation score of 3 out of 6. The next sections will compare different valuation approaches, and then conclude with a more complete way to think about what the stock might really be worth.

Approach 1: Valero Energy Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a stock could be worth by projecting the company’s future cash flows and discounting them back to today’s value. It is essentially asking what all those future dollars are worth in today’s terms.

For Valero Energy, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections. The latest twelve month free cash flow is about $5.47b. Analyst based forecasts and extrapolated estimates in this model point to free cash flow of $9.23b in 2026, tapering to about $4.76b by 2030, with later years gradually adjusting from there. These figures are all converted into today’s dollars using a discount rate, which is why the projected amounts for each year also have lower “discounted” values.

Bringing all of those discounted cash flows together gives an estimated intrinsic value of about $346.94 per share. Compared with the current share price of $236.35, this DCF model output indicates the stock is 31.9% undervalued on this basis.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Valero Energy is undervalued by 31.9%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Approach 2: Valero Energy Price vs Earnings

For a profitable company, the P/E ratio is a straightforward way to see how much investors are paying for each dollar of earnings. It connects directly to what you care about as a shareholder, which is how the current share price relates to current earnings.

What counts as a “normal” or “fair” P/E depends on how the market views a company’s growth prospects and risks. Higher expected growth or lower perceived risk often supports a higher P/E, while slower expected growth or higher risk usually points to a lower P/E.

Valero Energy currently trades on a P/E of 16.73x. That sits above the Oil and Gas industry average P/E of about 14.20x and the peer average of 14.58x. Simply Wall St’s Fair Ratio for Valero Energy is 20.54x, which is built from factors like earnings growth, industry, profit margin, market cap and risk.

This Fair Ratio is more tailored than a simple comparison with peers or the broad industry because it adjusts for the company’s specific characteristics rather than assuming all stocks in the group deserve the same multiple. With Valero Energy’s actual P/E of 16.73x below the Fair Ratio of 20.54x, the stock screens as undervalued on this measure.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 18 top founder-led companies.

Upgrade Your Decision Making: Choose your Valero Energy Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are introduced as a simple tool that lets you attach a clear story to your numbers by linking your view on Valero Energy’s future revenue, earnings and margins to a forecast and then to a fair value that can be compared with the current price.

On Simply Wall St’s Community page, Narratives let you pick or create a view that matches how you see Valero Energy. For example, a more bullish outlook that lines up with a Fair Value around US$265.11, or a more cautious view closer to US$170.00. The Narratives then show you how each story translates into expected future figures and whether that implies the stock is above or below your Fair Value today.

Because these Narratives update when fresh information appears, such as earnings, news or changes in analyst assumptions, you are effectively using a living valuation that helps you decide whether the gap between Fair Value and price suggests adding, trimming or waiting, all while staying anchored to a story that actually makes sense to you.

For Valero Energy however, here are previews of two leading Valero Energy narratives for you to review:

Fair value in this bull case narrative: US$247.33 per share.

Gap to that fair value: the current US$236.35 share price is about 4.4% below this narrative fair value.

Revenue trend in this narrative: about a 2.0% decline.

• This view assumes relatively flat revenue over the next few years, with profit margins rising from 2.0% to about 4.9% and earnings climbing to roughly US$5.7b by 2029.
• It leans on a strong balance sheet, sizable liquidity and projects like the St. Charles SEC unit optimization, along with dividend growth and buybacks, to support future earnings per share.
• Key risks include potential asset impairments, cost pressures, regulatory changes around RINs and low carbon fuel standards, and the impact of refinery closures on cash flow.

Fair value in this bear case narrative: US$185.51 per share.

Gap to that fair value: the current US$236.35 share price is about 27.4% above this narrative fair value.

Revenue trend in this narrative: 9% growth.

• This view highlights Valero alongside other large energy stocks as cash generative and dividend paying, but sees its fair value at about US$185.51 per share.
• It points to lower recent profit margins compared with a prior period, even with solid free cash flow and dividend coverage.
• The author frames VLO, CNQ and XOM as part of a broader income and value strategy, which in this case implies that investors should be cautious about paying much above the inferred fair value level for Valero.

Together, these two narratives outline a range of perspectives, from a slightly below fair value setup in one case to a premium price in the more cautious case, so you can consider which assumptions align more closely with your own view of the stock.

Do you think there's more to the story for Valero Energy? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.