Valero Energy Stock: Buy at a Premium or Wait for a Better Entry Point?

Valero Energy Corporation VLO is currently considered expensive on a relative basis, with the stock trading at a 6.44x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with the broader industry average of 5.77x.  

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Two other players belonging to the same space are Phillips 66 PSX and Par Pacific Holdings, Inc. PARR. While PARR is currently trading at 5.37x trailing 12-month EV/EBITDA, PSX trades at roughly 14.07x on the same basis.

Such a premium valuation often signals strong market confidence in Valero Energy’s prospects. However, this elevated price warrants a thorough assessment of the company’s fundamentals, growth potential and prevailing market conditions to determine whether it is justified.

Valero Energy's Advantageous Refining Business

West Texas Intermediate (“WTI”) oil is currently trading at more than $75 per barrel, according to data from Oilprice.com. The price, although high, is still significantly down from more than $100 per barrel reached in May this year. Valero Energy, like Phillips 66 and Par Pacific, is likely to gain from the current relatively softer crude pricing environment. This is because VLO, a leading refining company, can now purchase oil at a lower cost, enabling the production of end products. Thus, Valero Energy, which generates the lion's share of its profits from its refining activities, is likely to benefit.

Regarding the company’s access to diverse crude feedstocks, Valero has an advantage because its Gulf Coast refineries can buy crude oil from many low-cost sources, including the United States, Canada and Venezuela. This gives the company more flexibility to purchase cheaper oil, which helps keep refining costs low and can boost profits when competitors have fewer sourcing options.

VLO Can Lean on Its Strong Balance Sheet

Management ended the June quarter of 2026 with a net debt-to-capitalization of just 11%. The leading refining company added $2.1 billion to its cash balance during the June quarter, making its financial position even stronger. It also reported $5.3 billion of available liquidity excluding cash, providing significant financial flexibility.

Thus, the company can lean on its balance sheet to combat an uncertain business environment, reflecting its relatively stable business model compared to other players with a weaker balance sheet. Valero Energy is also witnessing upward earnings estimate revisions for 2026 over the past seven days.

Time to Bet on the Stock?

Valero Energy, with 14 refineries and a combined throughput capacity of roughly 3 million barrels per day, has also witnessed upward earnings estimate revisions for 2026 over the past seven days.

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Backed by all the positive developments, VLO has jumped 128% over the past year, outperforming the industry’s 73.6% rally. PARR and PSX have gained 157.7% and 69.8%, respectively, in the same period.

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While VLO's stock has outperformed the industry, it appears relatively overvalued as reflected in the valuation snapshot above. This reflects investors’ strong preference for the stock, possibly due to its flexibility to choose crude as input from several sources, which makes its business quite economical. Thus, investors may consider buying VLO despite its premium valuation. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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