• If you are wondering whether Valero Energy stock still offers value after a strong run, this article walks through what the current price could mean for you.
• With the share price at US$242.43 and returns of 1.1% over 7 days, a decline of 1.8% over 30 days, 46.7% year to date and 83.2% over 1 year, many investors are asking whether the recent performance already reflects the key positives or changes in risk.
• Recent headlines around Valero Energy have focused on broader energy sector trends and how refiners are positioning their operations and capital allocation. This gives investors extra context for the 1-year and multi-year returns of 83.2%, 128.5% and 266.3%, and helps frame whether the current share price feels stretched, conservative, or somewhere in between.
• Valero Energy currently records a valuation score of 2 out of 6, which reflects how many standard checks point to the stock looking undervalued. This sets up a closer look at traditional valuation approaches before turning to a more complete way of thinking about value later in the article.

Valero Energy scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

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

A Discounted Cash Flow, or DCF, model estimates what Valero Energy stock could be worth by projecting future cash flows and then discounting them back to today, using the idea that a dollar in the future is worth less than a dollar now.

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 inputs and subsequent extrapolations by Simply Wall St suggest projected Free Cash Flow figures over the next decade, ranging from around $10.15b in 2026 to about $5.29b in 2035, all in $ and shown on a discounted basis in the model.

When these projected cash flows are discounted back and aggregated, the model arrives at an estimated intrinsic value of about $407.58 per share. Compared with the recent share price of $242.43, the DCF output implies that Valero Energy is trading at a discount of roughly 40.5%, indicating that the stock appears undervalued on this measure.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Valero Energy is undervalued by 40.5%. Track this in your watchlist or portfolio, or discover 44 more high quality undervalued stocks.

Approach 2: Valero Energy Price vs Earnings

For a profitable company like Valero Energy, the P/E ratio is a useful way to think about what you are paying for each dollar of earnings. Investors typically accept a higher P/E when they expect stronger earnings growth or see lower risk, while slower growth or higher risk usually calls for a lower, more conservative multiple.

Valero Energy currently trades on a P/E of 17.16x. This sits above the Oil and Gas industry average P/E of 12.90x and also above the peer group average of 14.36x. This suggests the market is assigning a relatively higher earnings multiple to the stock compared with many competitors.

Simply Wall St’s Fair Ratio for Valero Energy is 16.57x. This is a proprietary estimate of what a reasonable P/E could be, given factors such as earnings growth profile, industry, profit margins, market cap and key risks. Because it adjusts for these company specific drivers, the Fair Ratio can provide a more tailored anchor than a simple comparison with industry or peer averages. With the current P/E of 17.16x sitting close to the Fair Ratio of 16.57x, the stock appears to be trading around a level that is broadly in line with these fundamentals.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Valero Energy Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so on Simply Wall St’s Community page you can use Narratives, which are short, clear stories that tie your view of Valero Energy’s business to specific forecasts for revenue, earnings and margins. These then translate into a Fair Value you can compare with today’s price to help decide whether to buy, hold or sell, with each Narrative updating automatically as new earnings or news arrive and reflecting different perspectives. For example, you might see a more optimistic Narrative that assumes earnings reach about US$7.0b by 2029 and supports a Fair Value around US$265 per share versus a more cautious Narrative that assumes earnings closer to US$2.7b and a Fair Value around US$170, giving you a transparent range of viewpoints rather than a single number.

For Valero Energy however we will make it really easy for you with previews of two leading Valero Energy Narratives:

Fair value in this narrative: US$259.47 per share

Implied undervaluation versus the recent US$242.43 price: about 6.6% below this narrative fair value

Revenue trend used in this narrative: revenue is assumed to decline about 1.27% per year

• Analysts in this narrative expect earnings to rise to about US$6.1b by 2029, helped by higher assumed profit margins, a lower future P/E multiple of 13.6x and ongoing share buybacks.
• The story leans on refinery optimization projects, liquidity of about US$5.3b and a focus on capital discipline and dividends as key supports for future earnings per share.
• Risks include potential asset impairments, cost pressures, regulatory shifts in areas such as RINs and California LCFS, and uncertainty around renewable diesel profitability.

Fair value in this narrative: US$170.00 per share

Implied overvaluation versus the recent US$242.43 price: about 42.7% above this narrative fair value

Revenue trend used in this narrative: revenue is assumed to decline about 2.72% per year

• This more cautious narrative uses a lower earnings path of about US$2.7b by 2029 and a higher assumed future P/E of 19.9x, with revenue trending down faster than in the bullish view.
• Concerns focus on limited room to grow refining volumes from already high utilization, sensitivity to crude quality differentials, and policy uncertainty around renewable diesel credits.
• It also factors in potential constraints from the planned Benicia refinery closure and the view that, on these assumptions, the current Valero Energy share price embeds expectations that may be hard to sustain.

If you want to see how these different assumptions and fair values are built out in full and compare them with your own view of Valero Energy, the Community Narratives are a useful next step, starting with Curious how numbers become stories that shape markets? Explore Community Narratives.

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.