Stock Analysis on Net
Stock Analysis on Net

Valero Energy Corp. (NYSE:VLO)

Present Value of Free Cash Flow to Equity (FCFE)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Valero Energy Corp., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 18.70%
01 FCFE0 8,051
1 FCFE1 8,463 = 8,051 × (1 + 5.11%) 7,129
2 FCFE2 8,802 = 8,463 × (1 + 4.00%) 6,247
3 FCFE3 9,056 = 8,802 × (1 + 2.89%) 5,415
4 FCFE4 9,218 = 9,056 × (1 + 1.78%) 4,643
5 FCFE5 9,280 = 9,218 × (1 + 0.67%) 3,938
5 Terminal value (TV5) 51,819 = 9,280 × (1 + 0.67%) ÷ (18.70% – 0.67%) 21,990
Intrinsic value of Valero Energy Corp. common stock 49,362
 
Intrinsic value of Valero Energy Corp. common stock (per share) $155.92
Current share price $142.01

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

1 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 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Valero Energy Corp. common stock βVLO 1.54
 
Required rate of return on Valero Energy Corp. common stock3 rVLO 18.70%

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]
= 4.65% + 1.54 [13.79% – 4.65%]
= 18.70%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Valero Energy Corp., PRAT model

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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
 
FCFE 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%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (44,958 × 18.70% – 8,051) ÷ (44,958 + 8,051)
= 0.67%

where:
Equity market value0 = current market value of Valero Energy Corp. common stock (US$ in millions)
FCFE0 = the last year Valero Energy Corp. free cash flow to equity (US$ in millions)
r = required rate of return on Valero Energy Corp. common stock

FCFE growth rate (g) forecast

Valero Energy Corp., H-model

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Year Value gt
1 g1 5.11%
2 g2 4.00%
3 g3 2.89%
4 g4 1.78%
5 and thereafter g5 0.67%

where:
g1 is implied by PRAT model
g5 is implied by single-stage 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% + (0.67% – 5.11%) × (2 – 1) ÷ (5 – 1)
= 4.00%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 5.11% + (0.67% – 5.11%) × (3 – 1) ÷ (5 – 1)
= 2.89%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 5.11% + (0.67% – 5.11%) × (4 – 1) ÷ (5 – 1)
= 1.78%