Valero Energy vs. Phillips 66: Which Refining Stock Should You Bet On?

Valero Energy Corporation VLO and Phillips 66 PSX are two well-known names in the refining space, with each company having a diversified network of refineries that can process a wide variety of feedstock into high-value refined products. Over the past year, VLO has rallied 32.7%, outperforming PSX’s 15.9% gain. Let us take a look at the fundamentals for VLO and PSX to determine if the former is a better stock.

While price gains demonstrate the attractiveness of any stock, it is certainly not the only parameter to look at. Hence, before coming to investment conclusions, we need to analyze the fundamentals and the overall business environment of both stocks.

Is VLO Poised to Gain From the Prevailing Softness in Crude Price?

Crude oil prices are currently under pressure due to an oversupplied market. Per the data from the U.S. Energy Information Administration, the West Texas Intermediate spot crude price average is expected to fall from $65.40 per barrel in 2025 to $52.21 per barrel in 2026. The softness in crude prices benefits refining players like Valero Energy, as it reduces input costs. Lower crude prices imply cheaper feedstock for refining operations, which supports refining gains. Furthermore, the operational flexibility of VLO’s refineries provides a strategic advantage to the company. The flexibility to vary product yields allows the refineries to shift their production between light products and distillates based on market and pricing conditions.

Although the current market environment is expected to support strong refining margins, thereby aiding Valero’s profitability, the refining industry is inherently cyclical and volatile. Refining margins and crack spreads depend largely on crude oil prices and the overall demand for refined petroleum products, which fluctuate across market cycles.

Phillips 66's Diversified Business Model Provides Stability

Phillips 66 is another leading refining player that stands to gain from the current weakness in crude prices. Lower crude prices should enhance PSX’s refining margins, aiding its profitability. Additionally, PSX’s diversification across multiple sectors, including midstream, chemicals and renewables, provides earnings and cash flow stability. Notably, the company’s midstream operations offer lower volatility and stable revenues across market cycles.

Furthermore, the company is pursuing a strategy focused on streamlining its asset base to allocate resources toward highly profitable assets and to increase shareholder returns. Since 2022, the company has pursued targeted divestitures and strategic acquisitions to strengthen its portfolio. This includes the EPIC NGL acquisition, which optimizes PSX’s NGL value chain in the Permian Basin, and increased ownership in the WRB refinery assets, enabling greater operational integration and synergy capture. These initiatives are aimed at improving long-term earnings visibility.

VLO vs. PSX: Which Stock to Bet On?

While both the stocks stand to gain on the back of stronger refining margins, given the softness in crude price, PSX’s diversified model, with exposure to the midstream sector, is expected to provide higher stability across market cycles.

Considering the valuation snapshot, it has become evident that investors are now willing to pay a premium for Phillips 66 over Valero due to its diversified business model that provides greater stability. The overvaluation is reflected in the fact that PSX trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 14.44X, above VLO’s 8.83X.

Both stocks currently carry a Zacks Rank #3 (Hold), but for different reasons. Phillips 66 offers diversification across multiple segments, which helps support more stable revenues and cash flows. Valero Energy, meanwhile, has greater sensitivity to refining margins and can benefit when crude prices are weak, making it more attractive to investors comfortable with higher volatility.

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

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