Oil refiner Valero Energy Corporation (NYSE:VLO)’s shares are up by more than 140% over the past year. It is among the handful of oil stocks that have benefited due to the ongoing tensions in the Middle East. Valero Energy Corporation (NYSE:VLO)’s refining operations mean that as long as it is guaranteed a steady supply of crude oil, the firm can continue to provide fuel products regardless of geopolitical tensions elsewhere. In his morning appearance on September 15th, Cramer discussed the firm’s performance and went as far as to suggest that he would have joined Valero Energy Corporation instead of Goldman Sachs after graduating from law school:
“Oh I wish I. . .I got to tell you David, if I had it all over to do. I would never have gone into Goldman Sachs, I would have gone to Valero, that’s where the money is.”
Looking at Valero Energy Corporation’s financial performance, the firm’s second quarter revenue jumped by 49% annually to sit at $44 billion, while its net income jumped to a staggering $3.7 billion from the year ago figure of $714 million. At the center of the growth was Valero Energy Corporation’s refining business, as the operating jumped to $4.47 billion, or by 252%. Simultaneously, the firm’s refining margins and refining margins per barrel jumped by 93% and 91%, respectively.
While the growth can also be attributed to the crack-spread cyclicality, Valero Energy Corporation’s ethanol operating income jumped by 488% while renewable diesel swung to $717 million operating income from the year-ago’s $79 million operating loss on the back of capacity growth that can help with the traditional upcycle cyclicality of the summer season.
On the flip side, should electrification continue, especially in commercial fleets, then Valero Energy Corporation could experience headwinds for its diesel business. Additionally, the conflict in Iran has once again shaken the global energy industry and spurred non-OPEC development of refinery capacity. This capacity surge could reduce the benchmark Gulf Coast 3-2-1 crack spread that Valero Energy Corporation is exposed to through its presence in the US Gulf Coast. The firm’s reliance on renewable diesel to potentially introduce alternate revenue streams could also experience headwinds from regulatory changes.
Looking at the valuation, Valero Energy Corporation’s forward P/E ratio of 14.39 is roughly in line with its peers, while its short interest as a percentage of float is similar to Marathon Petroleum but higher than Phillips 66. Hedge fund sentiment improved significantly in Q2. Insider Monkey’s data shows that 81 funds had disclosed a holding in Valero Energy Corporation in Q2 compared to 67 in Q1. Notable movements include AQR Capital Management‘s $526 million stake, which marked a 192% jump, and Two Sigma Advisors, which exited the position.
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