Valero Shares Rally Toward 52-Week High: Buy the Strength or Wait?

Valero Energy Corporation VLO stock is rapidly approaching its 52-week high of $206.77, closing at $196.91 on Feb. 12. The stock has risen 50.3% compared with the broader sub-industry gain of 30.2%. Its sub-industry peers, Phillips 66 PSX and HF Sinclair DINO, have gained 24.5% and 55.5%, respectively, over the past year.

Valero Energy is a leading refining player with a robust network of 15 refineries located across the United States, Canada and Peru. The company has a combined throughput capacity of 3.2 million barrels per day, which distinguishes it from other independent refiners.

However, before offering any investment advice, it would be wise to take a closer look at the company’s fundamentals.

Can the Prevailing Softness in Crude Prices Benefit VLO?

Crude oil prices are currently under pressure due to a supply-demand imbalance in the 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 $53.42 in 2026. The softness in crude prices benefits refining players like Valero Energy, as it brings down input costs. Lower crude prices imply cheaper feedstock for refining operations, which supports refining gains.

Operational Flexibility of VLO’s Refineries

Valero’s refineries have the operational flexibility to process various kinds of feedstock, including heavy sour, medium/light sour and sweet crude.  The operational flexibility of VLO’s refineries and refinery optimization provides a strategic advantage. The flexibility to vary product yields allows the refineries to shift production between light products and distillates, adjusting their refined-product mix according to market and pricing conditions. This shift in production, based on market signals, allows the company to capture higher margins and support profitability.

Time to Bet on the Stock or Wait?

Valero is expected to benefit from strong refining margins due to the current softness in crude prices. Furthermore, its robust network of refineries across the United States and the operational flexibility of its refineries enable the company to convert cheaper feedstock into high-value products, thereby supporting profitability.

However, VLO’s current valuation indicates that the stock may be overvalued, at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 7.73X, above the broader industry average of 5.06X. Phillips 66 and HF Sinclair currently trade at a trailing 12-month EV/EBITDA of 13.03X and 6.82X, respectively.

Therefore, investors should wait for a more opportune moment as VLO, carrying a Zacks Rank #3 (Hold), is currently overvalued. 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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