Valero Energy Corporation (NYSE:VLO) closed at $406.30 on October 2, and Phillips 66 (NYSE:PSX) at $264.58. Both refine crude oil into fuel, and neither sets the price of what it buys or what it sells.
What a refiner earns is the spread between the two, and the past twelve months have been unusually generous.
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Valero Runs the Better Refineries:
On operating performance, the gap is clear. Valero converts 12.27% of revenue into operating profit against 8.53% at Phillips 66. Neither company sets what it pays for crude, so a gap that wide points back to the refineries themselves.
The cash makes it starker. Valero generated $8.42 billion of free cash flow against $4.55 billion at Phillips 66, from $20 billion less revenue.
One company is turning a smaller business into nearly twice the cash. Both had extraordinary quarters. Earnings grew 421.00% at Valero and 338.70% at Phillips 66, on revenue up around half at each.
The balance sheet favors Valero too, with $11.35 billion of debt against $20.57 billion at Phillips 66.
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Phillips 66 Pays You More to Hold It:
The case for the other one is income and price. Phillips 66 pays $5.08 a share for a 1.92% yield against $4.80 and 1.18% at Valero. That is a meaningfully larger payment for owning a business in the same industry. It is also cheaper on earnings, at 9.68 times forward against 10.19 times. That discount is small, and it is the market charging slightly less for the weaker refining operation.
Phillips 66 is the larger company by revenue, at $152.17 billion against $132.43 billion, and it runs a bigger midstream and chemicals business alongside the refineries. That diversification matters because it is the part of the company that does not depend on the refining spread.
Our ten best energy stocks list for the long term contains no refiner at all. You can find out what did make it here.
The Valuation Case:
Refining margins are not a moat, and they are not controlled by either company, and the quarters that produced those earnings growth figures were exceptional rather than normal.
The forward multiples show the market knows. Both collapse from the mid-teens to below eleven times, which is the market pricing a return to ordinary spreads.
Enterprise value to EBITDA is the better measure for capital-heavy businesses, and there Valero is cheaper at 8.17 times against 9.23 times.
So the cheaper stock on earnings is the dearer one on enterprise value, because Phillips 66 carries nearly twice the debt. One refiner ranks among this year’s best-performing dividend payers, and you can find it here.
Conclusion:
Valero is the better of the two. It earns a wider margin on every barrel it processes, produces almost double the free cash flow from a smaller revenue base, carries half the debt, and is cheaper on enterprise value. However, Phillips 66 yields considerably more and trades at a lower multiple of earnings. Its midstream and chemicals operations also do not rise and fall with the refining spread. The number to watch for both is the crack spread, because neither company controls it.
Market Sentiment:
Valero Energy Corporation was held by 81 hedge funds with a combined stake value of about $2.86 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 67 hedge fund holders with a cumulative investment value of around $2.43 billion in the previous quarter.
Phillips 66 (NYSE:PSX) was held by 69 hedge funds with a combined stake value of about $5.63 billion at the end of the same quarter. This is up from 64 hedge fund holders with a cumulative investment value of around $5.55 billion three months earlier.
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This article is originally published at Insider Monkey.
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