Valero operates 14 refineries with about 3 million barrels per day of capacity, mostly on the US Gulf Coast. It sells gasoline, diesel and jet fuel to distributors and export customers. [S2][S3]
Sources through 2026-09-17 · Report dated 2026-09-17
Business details
How it makes money
Refining generates 95% of revenue by buying crude oil and selling refined products at market prices. The product-to-feedstock spread determines profitability. [S2][S3]
What drives results
Refining margin per barrel reached $23.62 in Q2 2026 versus $12.35 a year earlier, the primary determinant of profitability. [S3]
Throughput volume averaged 2.95 million barrels per day in Q2 2026, with the Gulf Coast contributing about 62% of volumes. [S3]
Renewable diesel margin per gallon swung from 22 cents to $2.52 year over year. [S3]
Key dependencies
Crude oil supply, especially heavy and sour grades trading at a discount to light sweet crudes, underpins Valero's feedstock cost advantage. [S2]
Renewable Fuel Standard and Low Carbon Fuel Standard policy support drives Diamond Green Diesel joint venture economics. [S2][S14]
Valero's record 2026 margins may be a cyclical peak rather than a durable new floor. The market prices a mid-cycle refining margin of $16-18 per barrel; I estimate $12-15.
A valuation model that works backward from a share price to find combinations of growth, margins, and other assumptions consistent with that price.
In this report: The reverse DCF shows what free cash flow the market is implicitly assuming at $397 per share. It implies roughly $7.1bn of sustainable annual FCF, which requires a mid-cycle refining margin above my estimate.
Biggest risk
Refining margins normalise faster than expected as Russian capacity is restored and new Middle East supply comes online. A fall to $10 per barrel would cut normalized EPS roughly in half.
Valero is the largest US independent refiner with about 3 million barrels per day of capacity. Refining is 95% of revenue; renewable diesel and ethanol add diversification. Scale, feedstock flexibility and Gulf Coast export logistics are the core advantages.
At $397, the market implies sustainable free cash flow near $7.1bn annually, or mid-cycle EBIT of roughly $9bn. That is above 2024-2025 levels but below the 2022 peak. The market is pricing a structurally improved margin environment.
A valuation model that works backward from a share price to find combinations of growth, margins, and other assumptions consistent with that price.
In this report: The reverse DCF shows what free cash flow the market is implicitly assuming at $397 per share. It implies roughly $7.1bn of sustainable annual FCF, which requires a mid-cycle refining margin above my estimate.
Our assessment
I rate Valero a narrow-moat cyclical with excellent capital allocation and a fortress balance sheet, but the current price offers no margin of safety. Base-case intrinsic value is roughly $310-330 per share; risk/reward is unfavourable at $397.
Refining margin per barrel is the dominant value driver. Each $5/bbl change moves intrinsic value roughly $13 per share. Futures price normalisation by 2027.
Present-value estimates at the analysis date; DCF forecast horizon 2027-2031 with 2% terminal growth, 7.6% WACC, 22% tax rate and 296 million diluted shares. Cross-checked against earnings power value and sum-of-the-parts.
Scenarios are conditional estimates, not promised returns.
Bear · USD 130.0000
Russian refining capacity is restored and new Middle East supply comes online. Refining margin falls to $10/bbl, renewable diesel margin compresses to $0.50/gal. Normalized EPS drops to about $8.50. Value falls to $130 per share.
Margins normalise gradually to $14-15/bbl by 2028. Throughput holds at 2.9-3.0 million bpd. Renewable diesel contributes $1.0-1.5bn. Normalized EPS of $18-22 supports $330 per share.
Capacity closures and geopolitical disruptions keep margins at $18-20/bbl through the cycle. Throughput grows to 3.1 million bpd. Normalized EPS of $28-32 supports $450 per share.
I could not establish management's own mid-cycle refining margin assumptions from public filings or transcripts. The analysis relies on my own estimates of normalised margins, which are labelled [Est.] where used. I also could not verify the exact pace at which damaged Russian refining capacity will be restored, nor the precise timing of new global refining capacity additions.
Sources (19)
S1SEC XBRL verified financial data for Valero Energy CorporationPlatform-provided from SEC filings · filing · 2026-07-30 · read 2026-09-17