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| | Valero Energy Corporation
Description of the Business
Valero Energy Corporation (VLO) owns and operates 17 refineries in the United States, Canada and Aruba. These refineries produce gasolines, jet fuel, petrochemicals, asphalt, lubricants and other refined products.VLO markets refined products on a wholesale basis in the US and Canada. It also sells refined products through a network of approximately 5800 retail and wholesale outlets.
Analysis of Competitors
Its main competitors are:
- ConocoPhillips
- Exxon Mobil Corporation
- Western Refining
- Tesoro Corporation
- Chevron
Competitive Position
VLO is the largest refiner in the US. They have a strong market position. It is difficult to enter the refinery market as it requires huge investments. However there will be huge competition between refiners to get licences for building new refineries, decreasing return on investments.
Financial Analysis
Their return on equity is about 20%. Their debt is limited to about a profit of one year and it is secured by the value of their refineries.
Risks
- Pressure on margins because of competition or lower demand because of the economy or because of a rise in oil prices
- Long term risk that oil could be replaced by alternative energy sources. However there is no proof that this will happen anytime soon.
- Damage because of hurricanes or other disasters could interrupt operations or crude oil supply.
We conclude that the risk of VLO is low.
Management Team
Most members of the management team are working since 2001 for VLO. The team is experienced. We tend to be positive. The company is conservatively managed.
Valuation Calculation
The cash flow value of VLO is $55 per share. We assign an additional value of $5 because of their strong balance sheet.
The total value of VLO is $60 per share.
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