Intrinsic value of Valero Energy - VLO

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$65.23

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$65.23

 
Intrinsic value

$246.31

 
Up/down potential

+278%

 
Rating

str. buy

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of VLO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 29.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -13.83
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
  5.72
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
Revenue, $m
  75,659
  83,452
  91,605
  100,118
  108,992
  118,232
  127,844
  137,837
  148,223
  159,015
  170,231
  181,889
  194,008
  206,613
  219,727
  233,377
  247,593
  262,404
  277,844
  293,946
  310,748
  328,288
  346,606
  365,745
  385,750
  406,669
  428,549
  451,444
  475,408
  500,497
  526,771
Variable operating expenses, $m
 
  64,341
  70,628
  77,191
  84,033
  91,157
  98,567
  106,272
  114,280
  122,601
  131,248
  140,236
  149,580
  159,298
  169,409
  179,934
  190,894
  202,314
  214,217
  226,632
  239,587
  253,110
  267,233
  281,989
  297,414
  313,542
  330,412
  348,064
  366,540
  385,883
  406,141
Fixed operating expenses, $m
 
  14,482
  14,844
  15,215
  15,596
  15,986
  16,385
  16,795
  17,215
  17,645
  18,086
  18,538
  19,002
  19,477
  19,964
  20,463
  20,975
  21,499
  22,036
  22,587
  23,152
  23,731
  24,324
  24,932
  25,555
  26,194
  26,849
  27,520
  28,208
  28,914
  29,637
Total operating expenses, $m
  72,087
  78,823
  85,472
  92,406
  99,629
  107,143
  114,952
  123,067
  131,495
  140,246
  149,334
  158,774
  168,582
  178,775
  189,373
  200,397
  211,869
  223,813
  236,253
  249,219
  262,739
  276,841
  291,557
  306,921
  322,969
  339,736
  357,261
  375,584
  394,748
  414,797
  435,778
Operating income, $m
  3,572
  4,628
  6,133
  7,712
  9,363
  11,089
  12,891
  14,770
  16,728
  18,769
  20,897
  23,114
  25,426
  27,837
  30,354
  32,980
  35,724
  38,592
  41,590
  44,726
  48,009
  51,447
  55,049
  58,823
  62,781
  66,933
  71,289
  75,860
  80,660
  85,700
  90,994
EBITDA, $m
  5,466
  6,721
  8,430
  10,222
  12,096
  14,054
  16,096
  18,225
  20,444
  22,756
  25,165
  27,674
  30,290
  33,017
  35,862
  38,831
  41,932
  45,170
  48,556
  52,096
  55,800
  59,678
  63,739
  67,993
  72,453
  77,129
  82,033
  87,179
  92,579
  98,248
  104,201
Interest expense (income), $m
  427
  442
  591
  748
  912
  1,083
  1,261
  1,446
  1,638
  1,838
  2,046
  2,262
  2,487
  2,720
  2,963
  3,215
  3,478
  3,752
  4,037
  4,335
  4,645
  4,968
  5,306
  5,659
  6,027
  6,413
  6,816
  7,237
  7,678
  8,139
  8,623
Earnings before tax, $m
  3,182
  4,187
  5,542
  6,964
  8,452
  10,007
  11,630
  13,324
  15,090
  16,931
  18,851
  20,852
  22,939
  25,117
  27,391
  29,765
  32,246
  34,840
  37,553
  40,392
  43,365
  46,479
  49,743
  53,165
  56,754
  60,520
  64,473
  68,623
  72,982
  77,561
  82,372
Tax expense, $m
  765
  1,130
  1,496
  1,880
  2,282
  2,702
  3,140
  3,597
  4,074
  4,571
  5,090
  5,630
  6,194
  6,782
  7,396
  8,037
  8,706
  9,407
  10,139
  10,906
  11,708
  12,549
  13,430
  14,354
  15,324
  16,340
  17,408
  18,528
  19,705
  20,941
  22,240
Net income, $m
  2,289
  3,056
  4,046
  5,084
  6,170
  7,305
  8,490
  9,726
  11,016
  12,360
  13,761
  15,222
  16,746
  18,336
  19,995
  21,728
  23,540
  25,433
  27,413
  29,486
  31,656
  33,929
  36,312
  38,810
  41,430
  44,180
  47,065
  50,095
  53,277
  56,619
  60,131

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,816
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  46,173
  45,627
  50,085
  54,739
  59,591
  64,643
  69,898
  75,362
  81,040
  86,941
  93,073
  99,447
  106,073
  112,965
  120,135
  127,598
  135,371
  143,469
  151,910
  160,714
  169,900
  179,490
  189,506
  199,970
  210,908
  222,345
  234,308
  246,826
  259,928
  273,645
  288,011
Adjusted assets (=assets-cash), $m
  41,357
  45,627
  50,085
  54,739
  59,591
  64,643
  69,898
  75,362
  81,040
  86,941
  93,073
  99,447
  106,073
  112,965
  120,135
  127,598
  135,371
  143,469
  151,910
  160,714
  169,900
  179,490
  189,506
  199,970
  210,908
  222,345
  234,308
  246,826
  259,928
  273,645
  288,011
Revenue / Adjusted assets
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
Average production assets, $m
  26,588
  29,292
  32,153
  35,141
  38,256
  41,499
  44,873
  48,381
  52,026
  55,814
  59,751
  63,843
  68,097
  72,521
  77,124
  81,915
  86,905
  92,104
  97,523
  103,175
  109,073
  115,229
  121,659
  128,377
  135,398
  142,741
  150,421
  158,457
  166,868
  175,674
  184,897
Working capital, $m
  8,472
  4,173
  4,580
  5,006
  5,450
  5,912
  6,392
  6,892
  7,411
  7,951
  8,512
  9,094
  9,700
  10,331
  10,986
  11,669
  12,380
  13,120
  13,892
  14,697
  15,537
  16,414
  17,330
  18,287
  19,288
  20,333
  21,427
  22,572
  23,770
  25,025
  26,339
Total debt, $m
  8,001
  10,551
  13,355
  16,283
  19,335
  22,512
  25,818
  29,255
  32,826
  36,538
  40,395
  44,404
  48,572
  52,907
  57,417
  62,111
  67,000
  72,094
  77,403
  82,941
  88,719
  94,751
  101,051
  107,633
  114,513
  121,707
  129,232
  137,105
  145,347
  153,975
  163,011
Total liabilities, $m
  26,149
  28,699
  31,503
  34,431
  37,483
  40,660
  43,966
  47,403
  50,974
  54,686
  58,543
  62,552
  66,720
  71,055
  75,565
  80,259
  85,148
  90,242
  95,551
  101,089
  106,867
  112,899
  119,199
  125,781
  132,661
  139,855
  147,380
  155,253
  163,495
  172,123
  181,159
Total equity, $m
  20,024
  16,928
  18,581
  20,308
  22,108
  23,982
  25,932
  27,959
  30,066
  32,255
  34,530
  36,895
  39,353
  41,910
  44,570
  47,339
  50,222
  53,227
  56,359
  59,625
  63,033
  66,591
  70,307
  74,189
  78,247
  82,490
  86,928
  91,572
  96,433
  101,522
  106,852
Total liabilities and equity, $m
  46,173
  45,627
  50,084
  54,739
  59,591
  64,642
  69,898
  75,362
  81,040
  86,941
  93,073
  99,447
  106,073
  112,965
  120,135
  127,598
  135,370
  143,469
  151,910
  160,714
  169,900
  179,490
  189,506
  199,970
  210,908
  222,345
  234,308
  246,825
  259,928
  273,645
  288,011
Debt-to-equity ratio
  0.400
  0.620
  0.720
  0.800
  0.870
  0.940
  1.000
  1.050
  1.090
  1.130
  1.170
  1.200
  1.230
  1.260
  1.290
  1.310
  1.330
  1.350
  1.370
  1.390
  1.410
  1.420
  1.440
  1.450
  1.460
  1.480
  1.490
  1.500
  1.510
  1.520
  1.530
Adjusted equity ratio
  0.368
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,289
  3,056
  4,046
  5,084
  6,170
  7,305
  8,490
  9,726
  11,016
  12,360
  13,761
  15,222
  16,746
  18,336
  19,995
  21,728
  23,540
  25,433
  27,413
  29,486
  31,656
  33,929
  36,312
  38,810
  41,430
  44,180
  47,065
  50,095
  53,277
  56,619
  60,131
Depreciation, amort., depletion, $m
  1,894
  2,092
  2,297
  2,510
  2,733
  2,964
  3,205
  3,456
  3,716
  3,987
  4,268
  4,560
  4,864
  5,180
  5,509
  5,851
  6,208
  6,579
  6,966
  7,370
  7,791
  8,231
  8,690
  9,170
  9,671
  10,196
  10,744
  11,318
  11,919
  12,548
  13,207
Funds from operations, $m
  5,790
  5,149
  6,343
  7,594
  8,902
  10,269
  11,695
  13,182
  14,732
  16,346
  18,029
  19,782
  21,610
  23,516
  25,504
  27,580
  29,747
  32,012
  34,379
  36,856
  39,447
  42,160
  45,002
  47,980
  51,102
  54,375
  57,810
  61,413
  65,196
  69,168
  73,338
Change in working capital, $m
  970
  390
  408
  426
  444
  462
  481
  500
  519
  540
  561
  583
  606
  630
  656
  683
  711
  741
  772
  805
  840
  877
  916
  957
  1,000
  1,046
  1,094
  1,145
  1,198
  1,254
  1,314
Cash from operations, $m
  4,820
  4,643
  5,935
  7,168
  8,459
  9,807
  11,215
  12,683
  14,212
  15,807
  17,468
  19,199
  21,004
  22,885
  24,848
  26,897
  29,036
  31,271
  33,607
  36,050
  38,607
  41,283
  44,086
  47,023
  50,101
  53,329
  56,716
  60,269
  63,998
  67,913
  72,024
Maintenance CAPEX, $m
  0
  -1,899
  -2,092
  -2,297
  -2,510
  -2,733
  -2,964
  -3,205
  -3,456
  -3,716
  -3,987
  -4,268
  -4,560
  -4,864
  -5,180
  -5,509
  -5,851
  -6,208
  -6,579
  -6,966
  -7,370
  -7,791
  -8,231
  -8,690
  -9,170
  -9,671
  -10,196
  -10,744
  -11,318
  -11,919
  -12,548
New CAPEX, $m
  -1,278
  -2,704
  -2,862
  -2,988
  -3,115
  -3,243
  -3,374
  -3,508
  -3,645
  -3,788
  -3,937
  -4,092
  -4,254
  -4,424
  -4,603
  -4,791
  -4,990
  -5,199
  -5,419
  -5,652
  -5,897
  -6,156
  -6,430
  -6,718
  -7,022
  -7,342
  -7,680
  -8,036
  -8,411
  -8,806
  -9,222
Cash from investing activities, $m
  -2,006
  -4,603
  -4,954
  -5,285
  -5,625
  -5,976
  -6,338
  -6,713
  -7,101
  -7,504
  -7,924
  -8,360
  -8,814
  -9,288
  -9,783
  -10,300
  -10,841
  -11,407
  -11,998
  -12,618
  -13,267
  -13,947
  -14,661
  -15,408
  -16,192
  -17,013
  -17,876
  -18,780
  -19,729
  -20,725
  -21,770
Free cash flow, $m
  2,814
  40
  981
  1,883
  2,834
  3,831
  4,877
  5,970
  7,111
  8,302
  9,545
  10,840
  12,190
  13,597
  15,065
  16,597
  18,196
  19,865
  21,609
  23,433
  25,340
  27,336
  29,426
  31,615
  33,910
  36,316
  38,840
  41,488
  44,268
  47,188
  50,254
Issuance/(repayment) of debt, $m
  678
  2,665
  2,804
  2,928
  3,052
  3,178
  3,306
  3,437
  3,572
  3,712
  3,857
  4,009
  4,168
  4,335
  4,510
  4,694
  4,889
  5,094
  5,310
  5,538
  5,778
  6,032
  6,300
  6,582
  6,880
  7,194
  7,525
  7,874
  8,241
  8,628
  9,036
Issuance/(repurchase) of shares, $m
  -1,330
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -901
  2,665
  2,804
  2,928
  3,052
  3,178
  3,306
  3,437
  3,572
  3,712
  3,857
  4,009
  4,168
  4,335
  4,510
  4,694
  4,889
  5,094
  5,310
  5,538
  5,778
  6,032
  6,300
  6,582
  6,880
  7,194
  7,525
  7,874
  8,241
  8,628
  9,036
Total cash flow (excl. dividends), $m
  1,813
  2,706
  3,785
  4,811
  5,885
  7,009
  8,182
  9,406
  10,683
  12,014
  13,402
  14,849
  16,358
  17,932
  19,575
  21,291
  23,084
  24,959
  26,919
  28,970
  31,118
  33,368
  35,725
  38,197
  40,790
  43,510
  46,365
  49,362
  52,509
  55,816
  59,290
Retained Cash Flow (-), $m
  503
  -1,605
  -1,654
  -1,727
  -1,800
  -1,874
  -1,950
  -2,027
  -2,107
  -2,189
  -2,275
  -2,365
  -2,458
  -2,557
  -2,660
  -2,769
  -2,884
  -3,004
  -3,132
  -3,266
  -3,408
  -3,558
  -3,716
  -3,882
  -4,058
  -4,243
  -4,438
  -4,644
  -4,861
  -5,089
  -5,330
Prev. year cash balance distribution, $m
 
  4,701
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  5,802
  2,131
  3,084
  4,085
  5,135
  6,233
  7,379
  8,576
  9,825
  11,127
  12,484
  13,899
  15,375
  16,915
  18,522
  20,201
  21,954
  23,787
  25,704
  27,710
  29,810
  32,010
  34,315
  36,732
  39,267
  41,926
  44,718
  47,649
  50,727
  53,960
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  5,563
  1,951
  2,684
  3,364
  3,980
  4,523
  4,985
  5,360
  5,644
  5,833
  5,928
  5,931
  5,846
  5,679
  5,438
  5,133
  4,777
  4,381
  3,958
  3,521
  3,083
  2,656
  2,249
  1,871
  1,528
  1,223
  960
  737
  554
  406
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Valero Energy Corporation operates as an independent petroleum refining and ethanol producing company in the United States, Canada, the United Kingdom, and Ireland. It operates through two segments, Refining and Ethanol. The company is involved in refining, marketing, and bulk sales activities. It produces conventional and premium gasolines, gasoline meeting the specifications of the California Air Resources Board (CARB), diesel fuels, low-sulfur and ultra-low-sulfur diesel fuels, CARB diesel fuels, distillates, jet fuels, asphalts, petrochemicals, lubricants, and other refined products. As of December 31, 2016, the company owned 15 petroleum refineries with a combined throughput capacity of approximately 3.1 million barrels per day. It markets its refined products through wholesale rack and bulk markets; and through approximately 7,400 outlets under the Valero, Diamond Shamrock, Shamrock, Ultramar, Beacon, and Texaco brand names. The company also produces and sells ethanol, distiller grains, and corn oil primarily to refiners and gasoline blenders, as well as to animal feed customers. It owns and operates 11 ethanol plants with a combined ethanol production capacity of approximately 1.4 billion gallons per year. In addition, it operates a 50-megawatt wind farm; convenience stores; gas stations; and truckstop and cardlock facilities, as well as engages in the credit card business. The company was formerly known as Valero Refining and Marketing Company and changed its name to Valero Energy Corporation in August 1997. Valero Energy Corporation was founded in 1955 and is headquartered in San Antonio, Texas.

FINANCIAL RATIOS  of  Valero Energy (VLO)

Valuation Ratios
P/E Ratio 12.9
Price to Sales 0.4
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 6.1
Price to Free Cash Flow 8.3
Growth Rates
Sales Growth Rate -13.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21%
Cap. Spend. - 3 Yr. Gr. Rate -9.6%
Financial Strength
Quick Ratio 42
Current Ratio 0
LT Debt to Equity 39.4%
Total Debt to Equity 40%
Interest Coverage 8
Management Effectiveness
Return On Assets 5.8%
Ret/ On Assets - 3 Yr. Avg. 7.9%
Return On Total Capital 8.2%
Ret/ On T. Cap. - 3 Yr. Avg. 12.1%
Return On Equity 11.3%
Return On Equity - 3 Yr. Avg. 16.2%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 13.7%
Gross Margin - 3 Yr. Avg. 13.2%
EBITDA Margin 7.3%
EBITDA Margin - 3 Yr. Avg. 7.5%
Operating Margin 4.7%
Oper. Margin - 3 Yr. Avg. 5.5%
Pre-Tax Margin 4.2%
Pre-Tax Margin - 3 Yr. Avg. 5.1%
Net Profit Margin 3%
Net Profit Margin - 3 Yr. Avg. 3.4%
Effective Tax Rate 24%
Eff/ Tax Rate - 3 Yr. Avg. 29.1%
Payout Ratio 48.5%

VLO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VLO stock intrinsic value calculation we used $75659 million for the last fiscal year's total revenue generated by Valero Energy. The default revenue input number comes from 2016 income statement of Valero Energy. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our VLO stock valuation model: a) initial revenue growth rate of 10.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for VLO is calculated based on our internal credit rating of Valero Energy, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Valero Energy.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of VLO stock the variable cost ratio is equal to 77.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $14129 million in the base year in the intrinsic value calculation for VLO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.6% for Valero Energy.

Corporate tax rate of 27% is the nominal tax rate for Valero Energy. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the VLO stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for VLO are equal to 35.1%.

Life of production assets of 14 years is the average useful life of capital assets used in Valero Energy operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for VLO is equal to 5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $20024 million for Valero Energy - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 449.087 million for Valero Energy is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Valero Energy at the current share price and the inputted number of shares is $29.3 billion.


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COMPANY NEWS

▶ 10 Retailers That Control Americas Gasoline Sales   [Apr-21-17 06:55AM  24/7 Wall St.]
▶ Behind Valeros Implied Volatility ahead of the 1Q17 Results   [Apr-18-17 10:37AM  Market Realist]
▶ Inside Valeros 1Q17 Crack Indicators: Reading the Hints   [Apr-17-17 05:36PM  Market Realist]
▶ Can Valeros 1Q17 Earnings Beat Estimates?   [03:57PM  Market Realist]
▶ What Is the Relationship between VLO and WTI?   [Apr-14-17 10:35AM  Market Realist]
▶ How Does Valeros PEG Ratio Compare to Peers?   [09:06AM  Market Realist]
▶ Has Implied Volatility in VLO Risen?   [09:06AM  Market Realist]
▶ Institutional Holdings in VLO Are on the Rise   [07:36AM  Market Realist]
▶ Why Short Interest in Valero Soared in 2017   [Apr-12-17 10:37AM  Market Realist]
▶ How Has VLOs Dividend Yield Shaped Up?   [07:37AM  Market Realist]
▶ Analyst Ratings for Valero: Why the Hold Ratings?   [Apr-11-17 04:35PM  Market Realist]
▶ How Valero Stock Has Performed in 2017   [03:05PM  Market Realist]
▶ Crude Surges! Goldman Sachs' 4 Energy Picks   [Apr-06-17 12:03PM  Barrons.com]
▶ Refining Stocks Dividend Yields: Who Leads the Pack?   [Apr-05-17 05:05PM  Market Realist]
▶ Why Refining Stocks Fell in 1Q17   [03:33PM  Market Realist]
▶ Forget About the 'Trump Trade' Narrative   [Apr-03-17 12:31PM  at The Wall Street Journal]
▶ Best stock picks as Trump trades fade   [Mar-27-17 04:34PM  CNBC Videos]
▶ What Sets Phillips 66 Apart From Other Refiners   [Mar-21-17 03:14PM  at Motley Fool]
▶ 3 Stocks to Buy With Dividends Yielding More Than 4%   [Mar-17-17 08:26AM  at Motley Fool]
▶ 3 Safe Stocks You Can Buy Right Now   [Mar-08-17 09:32AM  at Motley Fool]
▶ U.S. Ethanol Policy Set For Big Change   [Mar-05-17 09:55PM  at Forbes]
Stock chart of VLO Financial statements of VLO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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