Stock Analysis on Net
Stock Analysis on Net

Valero Energy Corp. (NYSE:VLO)

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

Intrinsic Stock Value (Valuation Summary)

Valero Energy Corp., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 18.68%
0 DPS01 4.08
1 DPS1 4.29 = 4.08 × (1 + 5.11%) 3.61
2 DPS2 4.62 = 4.29 × (1 + 7.66%) 3.28
3 DPS3 5.09 = 4.62 × (1 + 10.20%) 3.04
4 DPS4 5.74 = 5.09 × (1 + 12.75%) 2.89
5 DPS5 6.61 = 5.74 × (1 + 15.29%) 2.81
5 Terminal value (TV5) 224.85 = 6.61 × (1 + 15.29%) ÷ (18.68% – 15.29%) 95.50
Intrinsic value of Valero Energy Corp. common stock (per share) $111.13
Current share price $138.71

Based on: 10-K (reporting date: 2023-12-31).

1 DPS0 = Sum of the last year dividends per share of Valero Energy Corp. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.68%
Expected rate of return on market portfolio2 E(RM) 13.78%
Systematic risk of Valero Energy Corp. common stock βVLO 1.54
 
Required rate of return on Valero Energy Corp. common stock3 rVLO 18.68%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rVLO = RF + βVLO [E(RM) – RF]
= 4.68% + 1.54 [13.78% – 4.68%]
= 18.68%

Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Valero Energy Corp., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends on common stock 1,452 1,562 1,602 1,600 1,492
Net income (loss) attributable to Valero Energy Corporation stockholders 8,835 11,528 930 (1,421) 2,422
Revenues, includes excise taxes on sales by certain of foreign operations 144,766 176,383 113,977 64,912 108,324
Total assets 63,056 60,982 57,888 51,774 53,864
Total Valero Energy Corporation stockholders’ equity 26,346 23,561 18,430 18,801 21,803
Financial Ratios
Retention rate1 0.84 0.86 -0.72 — 0.38
Profit margin2 6.10% 6.54% 0.82% -2.19% 2.24%
Asset turnover3 2.30 2.89 1.97 1.25 2.01
Financial leverage4 2.39 2.59 3.14 2.75 2.47
Averages
Retention rate 0.34
Profit margin 2.70%
Asset turnover 2.08
Financial leverage 2.67
 
Dividend growth rate (g)5 5.11%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income (loss) attributable to Valero Energy Corporation stockholders – Dividends on common stock) ÷ Net income (loss) attributable to Valero Energy Corporation stockholders
= (8,835 – 1,452) ÷ 8,835
= 0.84

2 Profit margin = 100 × Net income (loss) attributable to Valero Energy Corporation stockholders ÷ Revenues, includes excise taxes on sales by certain of foreign operations
= 100 × 8,835 ÷ 144,766
= 6.10%

3 Asset turnover = Revenues, includes excise taxes on sales by certain of foreign operations ÷ Total assets
= 144,766 ÷ 63,056
= 2.30

4 Financial leverage = Total assets ÷ Total Valero Energy Corporation stockholders’ equity
= 63,056 ÷ 26,346
= 2.39

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.34 × 2.70% × 2.08 × 2.67
= 5.11%

Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × r – D0) ÷ (P0 + D0)
= 100 × ($138.71 × 18.68% – $4.08) ÷ ($138.71 + $4.08)
= 15.29%

where:
P0 = current price of share of Valero Energy Corp. common stock
D0 = the last year dividends per share of Valero Energy Corp. common stock
r = required rate of return on Valero Energy Corp. common stock

Dividend growth rate (g) forecast

Valero Energy Corp., H-model

Microsoft Excel
Year Value gt
1 g1 5.11%
2 g2 7.66%
3 g3 10.20%
4 g4 12.75%
5 and thereafter g5 15.29%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 5.11% + (15.29% – 5.11%) × (2 – 1) ÷ (5 – 1)
= 7.66%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 5.11% + (15.29% – 5.11%) × (3 – 1) ÷ (5 – 1)
= 10.20%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 5.11% + (15.29% – 5.11%) × (4 – 1) ÷ (5 – 1)
= 12.75%