Valero Energy Corporation (NYSE:VLO) has been on a strong rally this year, fuelled by an unusually sharp surge in global refining margins. The ongoing disruptions have curtailed refining capacity worldwide and tightened supplies of gasoline, diesel, and jet fuel.
The American refiner has more than doubled in value since the beginning of 2026, posting gains of over 133%. While some investors are concerned that Valero’s rally may have run its course, the analysts over at UBS see further upside ahead. On September 8, the firm boosted its price objective on VLO from $355 to $450 and kept a ‘Buy’ rating on the shares. The revised target reflects an upside of almost 17% from the current levels and even exceeds the stock’s all-time high of over $393 hit earlier this month.
According to UBS, Valero Energy is well-positioned to generate sustained value as refining margins stay higher for longer than expected and potentially settle at elevated mid-cycle levels. The refiner’s disciplined capital allocation strategy and high shareholder returns further add to the positive outlook.
Riding the Refining Crunch:
The strongest bullish argument for Valero is that the strong refining margins may persist for longer than initially expected. Even if crude supplies normalize in the Middle East, the damaged or idled refineries are likely to take some time to return to full operations, keeping refined-fuel markets relatively tight. The supply disruptions also extend beyond the Middle East, as a recent series of Ukrainian attacks on Russian refineries has further constrained global refining capacity.
Valero is especially well-positioned to capitalize on the tight fuel markets in Europe. According to the company’s COO, Gary Simmons, an arbitrage opportunity for jet fuel exports to the continent has reopened, creating an additional market for the American refiner’s output. Valero also expects jet fuel margins to improve over the remainder of the third quarter as refiners transition to winter diesel specifications.
Valero Energy’s shareholder-return strategy further supports its bullish case. The company’s highest-ever Q2 profit enabled it to return $2.6 billion to shareholders, up sharply from $695 million in the same period a year earlier. According to TD Cowen’s Jason Gabelman, Valero is expected to repurchase about 20% of its market value between Q3 and the end of next year, providing a potential boost to their per share earnings.
The Refining Boom Could Hit a Wall:
Investors need to be mindful that the unusually high profits recently posted by Valero were a result of extraordinary market conditions, much of which may already be reflected in the stock’s valuation. As a result, even a modest decline in refining margins could weigh down earnings expectations and trigger a significant pullback in the shares.
Also, while Valero Energy can support its attractive shareholder returns in the current high-margin environment, those returns could moderate considerably if crack spreads contract.
Conclusion:
UBS’s decision to raise its price target on Valero Energy signals confidence that the elevated crack spreads can support further gains. While a pullback in margins remains a key risk, the company’s strong earnings, aggressive shareholder returns, and tight fuel market provide a solid foundation for continued growth.
Market Sentiment:
Valero Energy Corporation was held by 81 hedge funds in the Insider Monkey database at the end of Q2 2026, with a total investment value of $2.85 billion. This was up from 67 hedge fund investors with a cumulative stake value of $2.43 billion in the previous quarter.
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This article is originally published at Insider Monkey.
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