EPD & VLO Faceoff: Which Energy Stock Should Be in Your Portfolio?

In the oil and energy sector, refining operations are highly vulnerable to fluctuations in oil and natural gas prices. In contrast, midstream activities, by their business model, generate stable fee-based revenues. This doesn’t mean that investors should always avoid refining companies. However, the million-dollar question is:  given the current state of commodity prices, would it be wiser to hold off on refining stocks for now?

To make this clear, let’s have a comparative analysis of Valero Energy Corporation VLO and Enterprise Products Partners LP EPD stocks. While Valero Energy is a giant in the refining space, EPD is among the leading midstream energy stocks.

Valero Energy Corporation

Valero Energy’s Refining Segment Poised for Continued Growth

West Texas Intermediate (WTI) oil price is currently hovering around $65 per barrel, according to data from Oilprice.com, which is lower than a year ago. Valero Energy is likely to gain from the softer crude pricing environment.

This is because VLO, a leading refining company, is now able to purchase oil at a lower cost, enabling the production of end products. Crude prices are likely to remain soft in the coming days, as the U.S. Energy Information Administration (“EIA”) expects global oil inventories to continue increasing.

EIA projects the spot average West Texas Intermediate price for 2026 at $53.42 per barrel, lower than $65.40 per barrel in 2025. Thus, VLO, which generates significant margin from its refining activities, is likely to benefit from lower oil prices.

VLO’s Strong Commitment to Shareholder Returns

The premier independent refiner has been rewarding shareholders handsomely. In the fourth quarter of 2025, VLO distributed $1.4 billion to shareholders with a payout ratio of 66%. For 2025 alone, the company returned an impressive $4 billion, suggesting a payout ratio of 67%. Valero Energy is expected to continue to reward shareholders handsomely, backed by its solid operations and strong financials.

Enterprise Products Partners LP

EPD’s Inflation-Linked Contracts & Growth Capital Pipeline

Enterprise Products' pipeline network spans more than 50,000 miles, transporting oil, natural gas and other commodities. The partnership also has more than 300 million barrels of liquid storage capacity, generating stable cash flows. EPD’s business model is inflation-protected because almost 90% of its long-term contracts include a provision for increasing fees when the business environment becomes inflationary. This is how the midstream energy player is able to safeguard its cash flow generation in all business scenarios.

EPD is also expected to generate incremental cash flow from its $4.8 billion in key capital projects, which are either in service or set to come online.

EPD’s Strong Focus on Returning Capital to Unit Holders

Due to the resilience of its business model, the partnership has been able to return capital to unitholders on an ongoing basis. Since its IPO, Enterprise Products has returned $62 billion to unitholders through both repurchases and distributions. EPD has increased distributions for 27 years consecutively. Thus, the partnership has become successful in keeping cash flow steady at all business cycles.

Which is the Better Pick?

Regarding the valuation story, it appears that investors are willing to pay a premium price for EPD over VLO. Enterprise Products is trading at a trailing 12-month EV/EBITDA multiple of 11.31x, which is higher than VLO’s 7.85x.

It seems that risk-averse investors prefer EPD, as it generates stable fee-based revenues and hence has low exposure to commodity price volatility. Thus, those who have already invested in Enterprise Products, currently carrying a Zacks Rank #3 (Hold), may continue to hold it.

Those who are willing to get an exposure to commodity prices and are willing to get rewards from a soft crude pricing environment may stay invested in #3 Ranked VLO. 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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