Can VLO Continue to Earn From Ongoing Softness in Oil Price?

Valero Energy Corporation VLO is a leading oil and gas refiner with the capability to process both heavy and light crude into refined products. With benchmark West Texas Intermediate (WTI) crude prices trading below $60 per barrel compared with approximately $76.37 a year ago, upstream oil and gas companies are facing increased pressure. In contrast, the overall downstream sector is benefiting from the ongoing soft crude pricing environment.

As a leading refiner, VLO benefits from relatively weaker crude prices because it can purchase its raw materials at a lower price and process them into end products, generating higher profit margin. As the EIA’s latest short-term energy outlook forecasts crude prices falling to $51.42 per barrel in 2026 from $65.32 in 2025, Valero’s profit margins are expected to expand sharply in the coming days. Thus, VLO’s business model will strengthen its balance sheet going forward.

VLO’s stable business model and rising profit margin enable the refining player to focus on its shareholders. The company has a strong track record of returning cash to shareholders through dividend payout and share buyback. From 2014 through March 2025, VLO had an average payout ratio of 58% (excluding 2020). Thus, continued softness in crude prices benefits VLO by generating higher profit margin. VLO currently has a dividend yield of 2.52%, while the broader industry has 3.81%.

PBF & PSX Poised to Benefit as Crude Prices Ease, Similar to VLO

PBF Energy Inc. PBF and Phillips 66 PSX are two other downstream players. Given the nature of their businesses, PBF and PSX, like VLO, benefit from softer crude prices. While dividend yield for PBF is 3.36%, the same for PSX is 3.46%.

VLO’s Price Performance, Valuation & Estimates

Shares of Valero have gained 34.2% over the past year compared with the 12% rally of the composite stocks belonging to the industry.

From a valuation standpoint, VLO trades at a trailing 12-month enterprise-value-to-EBITDA (EV/EBITDA) of 8.64X. This is above the composite stocks' average of 4.48X.

The Zacks Consensus Estimate for VLO’s 2025 earnings has witnessed a downward revision over the past seven days.

Valero currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research