Intrinsic value of Valero Energy - VLO

Previous Close

$67.78

  Intrinsic Value

$2,056

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+361%

Previous close

$67.78

 
Intrinsic value

$2,056

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+361%

*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 30.9

 

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
  38.60
  35.24
  32.22
  29.49
  27.04
  24.84
  22.86
  21.07
  19.46
  18.02
  16.72
  15.54
  14.49
  13.54
  12.69
  11.92
  11.23
  10.60
  10.04
  9.54
  9.08
  8.68
  8.31
  7.98
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
Revenue, $m
  75,659
  104,863
  141,817
  187,505
  242,809
  308,476
  385,103
  473,124
  572,814
  684,305
  807,599
  942,594
  1,089,111
  1,246,919
  1,415,760
  1,595,372
  1,785,508
  1,985,952
  2,196,533
  2,417,134
  2,647,701
  2,888,244
  3,138,842
  3,399,643
  3,670,865
  3,952,793
  4,245,780
  4,550,241
  4,866,657
  5,195,568
  5,537,571
Variable operating expenses, $m
 
  80,850
  109,341
  144,566
  187,205
  237,835
  296,914
  364,778
  441,640
  527,599
  622,659
  726,740
  839,705
  961,375
  1,091,551
  1,230,032
  1,376,627
  1,531,169
  1,693,527
  1,863,611
  2,041,378
  2,226,836
  2,420,047
  2,621,125
  2,830,237
  3,047,604
  3,273,496
  3,508,236
  3,752,193
  4,005,783
  4,269,468
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
  95,332
  124,185
  159,781
  202,801
  253,821
  313,299
  381,573
  458,855
  545,244
  640,745
  745,278
  858,707
  980,852
  1,111,515
  1,250,495
  1,397,602
  1,552,668
  1,715,563
  1,886,198
  2,064,530
  2,250,567
  2,444,371
  2,646,057
  2,855,792
  3,073,798
  3,300,345
  3,535,756
  3,780,401
  4,034,697
  4,299,105
Operating income, $m
  3,572
  9,531
  17,632
  27,723
  40,007
  54,655
  71,803
  91,550
  113,960
  139,061
  166,854
  197,316
  230,404
  266,068
  304,245
  344,877
  387,907
  433,284
  480,970
  530,936
  583,172
  637,677
  694,471
  753,586
  815,073
  878,995
  945,434
  1,014,485
  1,086,256
  1,160,871
  1,238,467
EBITDA, $m
  5,466
  12,161
  21,187
  32,424
  46,095
  62,389
  81,458
  103,412
  128,321
  156,217
  187,101
  220,948
  257,710
  297,330
  339,740
  384,876
  432,672
  483,075
  536,040
  591,537
  649,553
  710,090
  773,166
  838,820
  907,106
  978,097
  1,051,882
  1,128,566
  1,208,270
  1,291,132
  1,377,302
Interest expense (income), $m
  427
  442
  1,003
  1,715
  2,595
  3,660
  4,925
  6,400
  8,095
  10,015
  12,162
  14,537
  17,137
  19,958
  22,998
  26,249
  29,708
  33,370
  37,230
  41,286
  45,534
  49,975
  54,607
  59,433
  64,456
  69,679
  75,109
  80,752
  86,615
  92,709
  99,043
Earnings before tax, $m
  3,182
  9,090
  16,629
  26,008
  37,413
  50,995
  66,879
  85,150
  105,864
  129,045
  154,691
  182,779
  213,268
  246,109
  281,248
  318,628
  358,198
  399,914
  443,739
  489,651
  537,637
  587,702
  639,864
  694,153
  750,616
  809,316
  870,325
  933,733
  999,641
  1,068,163
  1,139,424
Tax expense, $m
  765
  2,454
  4,490
  7,022
  10,101
  13,769
  18,057
  22,991
  28,583
  34,842
  41,767
  49,350
  57,582
  66,449
  75,937
  86,030
  96,714
  107,977
  119,810
  132,206
  145,162
  158,680
  172,763
  187,421
  202,666
  218,515
  234,988
  252,108
  269,903
  288,404
  307,645
Net income, $m
  2,289
  6,636
  12,139
  18,986
  27,311
  37,227
  48,821
  62,160
  77,281
  94,203
  112,925
  133,428
  155,685
  179,660
  205,311
  232,598
  261,485
  291,937
  323,930
  357,445
  392,475
  429,023
  467,100
  506,731
  547,950
  590,801
  635,337
  681,625
  729,738
  779,759
  831,780

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
  57,334
  77,538
  102,518
  132,755
  168,658
  210,554
  258,679
  313,185
  374,142
  441,552
  515,360
  595,468
  681,749
  774,063
  872,265
  976,221
  1,085,813
  1,200,947
  1,321,561
  1,447,622
  1,579,139
  1,716,152
  1,858,744
  2,007,034
  2,161,177
  2,321,367
  2,487,830
  2,660,830
  2,840,660
  3,027,650
Adjusted assets (=assets-cash), $m
  41,357
  57,334
  77,538
  102,518
  132,755
  168,658
  210,554
  258,679
  313,185
  374,142
  441,552
  515,360
  595,468
  681,749
  774,063
  872,265
  976,221
  1,085,813
  1,200,947
  1,321,561
  1,447,622
  1,579,139
  1,716,152
  1,858,744
  2,007,034
  2,161,177
  2,321,367
  2,487,830
  2,660,830
  2,840,660
  3,027,650
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
  36,807
  49,778
  65,814
  85,226
  108,275
  135,171
  166,066
  201,058
  240,191
  283,467
  330,850
  382,278
  437,669
  496,932
  559,976
  626,713
  697,069
  770,983
  848,414
  929,343
  1,013,774
  1,101,734
  1,193,275
  1,288,474
  1,387,430
  1,490,269
  1,597,135
  1,708,197
  1,823,644
  1,943,688
Working capital, $m
  8,472
  5,243
  7,091
  9,375
  12,140
  15,424
  19,255
  23,656
  28,641
  34,215
  40,380
  47,130
  54,456
  62,346
  70,788
  79,769
  89,275
  99,298
  109,827
  120,857
  132,385
  144,412
  156,942
  169,982
  183,543
  197,640
  212,289
  227,512
  243,333
  259,778
  276,879
Total debt, $m
  8,001
  17,915
  30,623
  46,336
  65,355
  87,938
  114,290
  144,561
  178,845
  217,187
  259,588
  306,014
  356,401
  410,672
  468,737
  530,507
  595,895
  664,828
  737,248
  813,114
  892,406
  975,130
  1,061,312
  1,151,002
  1,244,276
  1,341,232
  1,441,992
  1,546,697
  1,655,514
  1,768,627
  1,886,244
Total liabilities, $m
  26,149
  36,063
  48,771
  64,484
  83,503
  106,086
  132,438
  162,709
  196,993
  235,335
  277,736
  324,162
  374,549
  428,820
  486,885
  548,655
  614,043
  682,976
  755,396
  831,262
  910,554
  993,278
  1,079,460
  1,169,150
  1,262,424
  1,359,380
  1,460,140
  1,564,845
  1,673,662
  1,786,775
  1,904,392
Total equity, $m
  20,024
  21,271
  28,767
  38,034
  49,252
  62,572
  78,115
  95,970
  116,191
  138,807
  163,816
  191,199
  220,919
  252,929
  287,177
  323,610
  362,178
  402,837
  445,551
  490,299
  537,068
  585,860
  636,692
  689,594
  744,610
  801,797
  861,227
  922,985
  987,168
  1,053,885
  1,123,258
Total liabilities and equity, $m
  46,173
  57,334
  77,538
  102,518
  132,755
  168,658
  210,553
  258,679
  313,184
  374,142
  441,552
  515,361
  595,468
  681,749
  774,062
  872,265
  976,221
  1,085,813
  1,200,947
  1,321,561
  1,447,622
  1,579,138
  1,716,152
  1,858,744
  2,007,034
  2,161,177
  2,321,367
  2,487,830
  2,660,830
  2,840,660
  3,027,650
Debt-to-equity ratio
  0.400
  0.840
  1.060
  1.220
  1.330
  1.410
  1.460
  1.510
  1.540
  1.560
  1.580
  1.600
  1.610
  1.620
  1.630
  1.640
  1.650
  1.650
  1.650
  1.660
  1.660
  1.660
  1.670
  1.670
  1.670
  1.670
  1.670
  1.680
  1.680
  1.680
  1.680
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
  6,636
  12,139
  18,986
  27,311
  37,227
  48,821
  62,160
  77,281
  94,203
  112,925
  133,428
  155,685
  179,660
  205,311
  232,598
  261,485
  291,937
  323,930
  357,445
  392,475
  429,023
  467,100
  506,731
  547,950
  590,801
  635,337
  681,625
  729,738
  779,759
  831,780
Depreciation, amort., depletion, $m
  1,894
  2,629
  3,556
  4,701
  6,088
  7,734
  9,655
  11,862
  14,361
  17,157
  20,248
  23,632
  27,306
  31,262
  35,495
  39,998
  44,765
  49,791
  55,070
  60,601
  66,382
  72,412
  78,695
  85,234
  92,034
  99,102
  106,448
  114,081
  122,014
  130,260
  138,835
Funds from operations, $m
  5,790
  9,265
  15,694
  23,687
  33,399
  44,961
  58,477
  74,021
  91,642
  111,360
  133,172
  157,061
  182,991
  210,922
  240,806
  272,597
  306,250
  341,728
  379,000
  418,046
  458,857
  501,435
  545,796
  591,965
  639,984
  689,903
  741,785
  795,706
  851,752
  910,019
  970,614
Change in working capital, $m
  970
  1,460
  1,848
  2,284
  2,765
  3,283
  3,831
  4,401
  4,985
  5,575
  6,165
  6,750
  7,326
  7,890
  8,442
  8,981
  9,507
  10,022
  10,529
  11,030
  11,528
  12,027
  12,530
  13,040
  13,561
  14,096
  14,649
  15,223
  15,821
  16,446
  17,100
Cash from operations, $m
  4,820
  7,804
  13,847
  21,403
  30,634
  41,677
  54,645
  69,620
  86,658
  105,785
  127,008
  150,311
  175,665
  203,031
  232,364
  263,616
  296,743
  331,706
  368,471
  407,016
  447,328
  489,408
  533,266
  578,925
  626,423
  675,806
  727,136
  780,483
  835,931
  893,573
  953,514
Maintenance CAPEX, $m
  0
  -1,899
  -2,629
  -3,556
  -4,701
  -6,088
  -7,734
  -9,655
  -11,862
  -14,361
  -17,157
  -20,248
  -23,632
  -27,306
  -31,262
  -35,495
  -39,998
  -44,765
  -49,791
  -55,070
  -60,601
  -66,382
  -72,412
  -78,695
  -85,234
  -92,034
  -99,102
  -106,448
  -114,081
  -122,014
  -130,260
New CAPEX, $m
  -1,278
  -10,220
  -12,971
  -16,036
  -19,412
  -23,049
  -26,896
  -30,895
  -34,991
  -39,133
  -43,276
  -47,383
  -51,428
  -55,391
  -59,263
  -63,044
  -66,738
  -70,356
  -73,914
  -77,431
  -80,929
  -84,431
  -87,960
  -91,541
  -95,199
  -98,957
  -102,838
  -106,866
  -111,062
  -115,448
  -120,043
Cash from investing activities, $m
  -2,006
  -12,119
  -15,600
  -19,592
  -24,113
  -29,137
  -34,630
  -40,550
  -46,853
  -53,494
  -60,433
  -67,631
  -75,060
  -82,697
  -90,525
  -98,539
  -106,736
  -115,121
  -123,705
  -132,501
  -141,530
  -150,813
  -160,372
  -170,236
  -180,433
  -190,991
  -201,940
  -213,314
  -225,143
  -237,462
  -250,303
Free cash flow, $m
  2,814
  -4,314
  -1,753
  1,811
  6,521
  12,540
  20,015
  29,070
  39,804
  52,291
  66,575
  82,680
  100,605
  120,335
  141,838
  165,077
  190,007
  216,585
  244,766
  274,514
  305,798
  338,596
  372,893
  408,689
  445,990
  484,816
  525,195
  567,169
  610,788
  656,112
  703,211
Issuance/(repayment) of debt, $m
  678
  10,029
  12,709
  15,712
  19,019
  22,583
  26,352
  30,271
  34,284
  38,342
  42,401
  46,425
  50,388
  54,271
  58,065
  61,769
  65,388
  68,933
  72,420
  75,866
  79,293
  82,724
  86,182
  89,690
  93,274
  96,956
  100,759
  104,705
  108,817
  113,114
  117,616
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
  10,029
  12,709
  15,712
  19,019
  22,583
  26,352
  30,271
  34,284
  38,342
  42,401
  46,425
  50,388
  54,271
  58,065
  61,769
  65,388
  68,933
  72,420
  75,866
  79,293
  82,724
  86,182
  89,690
  93,274
  96,956
  100,759
  104,705
  108,817
  113,114
  117,616
Total cash flow (excl. dividends), $m
  1,813
  5,715
  10,955
  17,523
  25,540
  35,124
  46,368
  59,341
  74,088
  90,633
  108,976
  129,105
  150,993
  174,606
  199,904
  226,846
  255,396
  285,518
  317,186
  350,380
  385,091
  421,319
  459,075
  498,379
  539,264
  581,772
  625,955
  671,875
  719,605
  769,225
  820,827
Retained Cash Flow (-), $m
  503
  -5,948
  -7,496
  -9,267
  -11,218
  -13,320
  -15,543
  -17,854
  -20,222
  -22,615
  -25,009
  -27,383
  -29,720
  -32,010
  -34,248
  -36,433
  -38,568
  -40,659
  -42,715
  -44,748
  -46,769
  -48,792
  -50,832
  -52,902
  -55,015
  -57,187
  -59,430
  -61,758
  -64,183
  -66,717
  -69,373
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
 
  4,468
  3,460
  8,255
  14,322
  21,804
  30,824
  41,486
  53,867
  68,018
  83,967
  101,722
  121,273
  142,596
  165,655
  190,413
  216,828
  244,859
  274,471
  305,633
  338,322
  372,527
  408,243
  445,478
  484,249
  524,585
  566,524
  610,117
  655,422
  702,508
  751,454
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
 
  4,284
  3,167
  7,184
  11,793
  16,900
  22,370
  28,028
  33,668
  39,072
  44,021
  48,306
  51,752
  54,217
  55,613
  55,902
  55,101
  53,277
  50,546
  47,059
  42,990
  38,532
  33,873
  29,197
  24,664
  20,407
  16,528
  13,095
  10,140
  7,669
  5,658
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 13.4
Price to Sales 0.4
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 6.3
Price to Free Cash Flow 8.6
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 38.6% 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 455.754 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 $30.9 billion.

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COMPANY NEWS

▶ Shorting Valero: Mapping the Short Interest in VLO   [Jul-19-17 10:36AM  Market Realist]
▶ Venezuelas National Oil Company On Its Last Legs   [Jul-18-17 01:00PM  Oilprice.com]
▶ Inside Valero Recent Stock Performance   [09:06AM  Market Realist]
▶ Marathon Petroleums 2Q17 Estimates: What to Expect   [Jul-17-17 04:14PM  Market Realist]
▶ Where Valeros Debt Stands next to Peers   [07:37AM  Market Realist]
▶ 3 Top Oil Stocks for July   [Jul-16-17 08:35AM  Motley Fool]
▶ Understanding Valeros Ethanol Earnings 2Q17   [Jul-14-17 10:37AM  Market Realist]
▶ How Valeros Oil Spreads Moved in 2Q17   [09:08AM  Market Realist]
▶ Can Valeros Refining Margins Rise in 2Q17?   [07:39AM  Market Realist]
▶ Behind Valeros Refining Margin Trend in 2017   [Jul-13-17 05:06PM  Market Realist]
▶ Inside Valeros Growth Plans: EBITDA Target   [03:15PM  Market Realist]
▶ Refiners Valuations: MPC, TSO, VLO, and PSX   [09:05AM  Market Realist]
▶ Short Interest in Refining Stocks: MPC, PSX, TSO, and VLO   [Jul-11-17 10:36AM  Market Realist]
▶ Could Valero and Tesoros Refining Margins Rise in 2Q17?   [Jul-10-17 10:36AM  Market Realist]
▶ Analysts Ratings for Refiners: MPC, VLO, TSO, and PSX   [Jul-06-17 09:39PM  Market Realist]
▶ Refiners Tumble on Proposed Biofuel Quotas   [04:01PM  GuruFocus.com]
▶ [$$] Tesoro's on Top   [03:16PM  Barrons.com]
▶ 5 Stocks to Buy With Dividends Yielding More Than 3%   [Jul-03-17 11:47AM  Motley Fool]
▶ [$$] West Coast Energy Market Could Rise   [11:06AM  Barrons.com]
▶ Why Marathon Petroleums Refining Margin Rose   [07:37AM  Market Realist]
▶ The Current Focus of Marathon Petroleums Capex   [Jun-29-17 05:35PM  Market Realist]
▶ Chart in Focus: Tesoros Falling Short Interest   [Jun-28-17 10:35AM  Market Realist]
▶ Better Buy: Phillips 66 vs. Valero   [Jun-26-17 06:16PM  Motley Fool]
▶ Why Most Analyst Ratings for Phillips 66 Are a Hold   [Jun-20-17 07:36AM  Market Realist]
▶ What Happened in the Energy Sector Last Week?   [Jun-19-17 02:17PM  Market Realist]
▶ What Analysts Recommend for Energy Stocks   [02:17PM  Market Realist]
▶ 3 Stocks That Could Make You Rich   [12:32PM  Motley Fool]
▶ Behind Valeros Recent Correlation with WTI   [07:35AM  Market Realist]
▶ ETFs with exposure to Valero Energy Corp. : June 15, 2017   [Jun-15-17 03:41PM  Capital Cube]
▶ How Valeros Beta Compares to Peers   [07:36AM  Market Realist]
▶ Shorting Valero: Gauging Short Interest in VLO Stock   [Jun-14-17 10:36AM  Market Realist]
▶ Valero by Institution: Whos Buying What   [09:06AM  Market Realist]
▶ Your Valero Forecast for the Week   [07:37AM  Market Realist]
▶ How Is Valeros Dividend Yield Trending?   [04:05PM  Market Realist]
▶ How Valero Stock Has Performed in 2Q17   [12:38PM  Market Realist]
▶ Could Tesoros Refining Margins Rise in 2Q17?   [Jun-12-17 10:36AM  Market Realist]
▶ How Tesoros 1Q17 Dividend Outflows Shaped Up   [Jun-08-17 10:36AM  Market Realist]
▶ Oil Markets Unshaken By Rising Geopolitical Tensions   [Jun-06-17 10:49AM  Oilprice.com]
▶ Trump decision on Paris Accord will change little for San Antonio   [02:00PM  American City Business Journals]
▶ San Antonio companies landing lucrative energy deals in Mexico   [Jun-01-17 02:57PM  American City Business Journals]
▶ Why Phillips 66 Stock Fell in 2Q17   [01:02PM  Market Realist]
▶ Oil stocks after OPEC keeps production steady   [May-30-17 09:42AM  CNBC Videos]
▶ What Valero Needs to Soar in 2Q17   [07:35AM  Market Realist]
▶ Oil Production Cut Extended to March 2018   [12:38PM  GuruFocus.com]
▶ Inside Refiners ROEs: Comparing MPC, TSO, VLO, and PSX   [May-25-17 10:37AM  Market Realist]
▶ How Major Refiners Cash Flows Fared in 1Q17   [May-24-17 06:06PM  Market Realist]
▶ Has Institutional Ownership in Marathon Petroleum Surged?   [May-22-17 10:36AM  Market Realist]
Stock chart of VLO Financial statements of VLO Annual reports 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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