How Valero Is Reinforcing Its Refining Leadership in a Low-Carbon World

Valero Energy Corporation VLO, a downstream player has strong foothold in the refining sector. Valero Energy boasts a robust network of refineries that is capable of processing a wide range of feedstocks, including heavy to light sour and sweet crude to its finished products.

With rising global awareness on air quality standards, cleaner fuels and technologies that support emissions reduction are expected to see stronger demand going forward. To address this rising awareness and to meet low-carbon fuel standards, VLO has established refineries capable of producing renewable diesel and Sustainable Aviation Fuel (SAF).

The feedstock used to convert into renewable diesel and SAF is derived from used cooking oil, recycled animal fats and inedible corn oil. Compared to conventional fuels, renewable diesel and SAF are capable of an 80% reduction in greenhouse gas (GHG) emissions, according to the company.

With the expansion of its annual renewable diesel capacity to 1.2 billion gallons from an initial capacity of 160 million gallons, VLO’s focus not only aligns with the current global awareness shift but also creates a pathway for enhanced cash flow while strengthening its business model. Moreover, Valero can produce up to 235 million gallons of neat SAF and is currently the world’s second-largest renewable diesel producer.

BP & PSX Also Producing Low Carbon Fuel Like VLO

BP p.l.c. BP and Phillips 66 PSX, which have a presence in refining operations, are involved in the production of SAF and renewable diesel.  BP recently formed Etlas, a joint venture with Corteva, Inc., to enhance biofuel production. PSX, like BP, produces renewable fuels at its Rodeo Renewable Energy Complex. Like VLO, PSX produces renewable diesel and SAF from waste oils, fats, greases and vegetable oils. PSX has a production capacity of 50,000 barrels per day for renewable fuels.

VLO’s Price Performance, Valuation & Estimates

VLO shares have gained 30% over the past year compared with the 11.8% improvement 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 8.83X. This is above the broader industry average of 4.56X.

The Zacks Consensus Estimate for VLO’s 2025 earnings has remained constant over the past seven days.

Valero Energy currently carries a Zacks Rank #3 (Hold). 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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