Intrinsic value of Valero Energy - VLO

Previous Close

$82.88

  Intrinsic Value

$348.02

stock screener

  Rating & Target

str. buy

+320%

Previous close

$82.88

 
Intrinsic value

$348.02

 
Up/down potential

+320%

 
Rating

str. buy

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 36.6

 

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
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
Revenue, $m
  75,659
  85,949
  96,898
  108,493
  120,720
  133,567
  147,029
  161,100
  175,782
  191,078
  206,998
  223,555
  240,766
  258,653
  277,239
  296,556
  316,635
  337,512
  359,229
  381,827
  405,354
  429,860
  455,398
  482,025
  509,800
  538,787
  569,053
  600,668
  633,705
  668,242
  704,361
Variable operating expenses, $m
 
  66,266
  74,709
  83,648
  93,075
  102,981
  113,359
  124,208
  135,528
  147,321
  159,596
  172,361
  185,631
  199,421
  213,752
  228,645
  244,125
  260,222
  276,965
  294,389
  312,528
  331,422
  351,112
  371,641
  393,056
  415,405
  438,740
  463,115
  488,586
  515,215
  543,063
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
  80,748
  89,553
  98,863
  108,671
  118,967
  129,744
  141,003
  152,743
  164,966
  177,682
  190,899
  204,633
  218,898
  233,716
  249,108
  265,100
  281,721
  299,001
  316,976
  335,680
  355,153
  375,436
  396,573
  418,611
  441,599
  465,589
  490,635
  516,794
  544,129
  572,700
Operating income, $m
  3,572
  5,200
  7,345
  9,630
  12,049
  14,601
  17,284
  20,097
  23,039
  26,112
  29,316
  32,656
  36,134
  39,754
  43,524
  47,448
  51,535
  55,791
  60,227
  64,851
  69,674
  74,707
  79,962
  85,451
  91,189
  97,188
  103,464
  110,032
  116,910
  124,114
  131,662
EBITDA, $m
  5,466
  7,355
  9,775
  12,350
  15,076
  17,950
  20,970
  24,136
  27,446
  30,902
  34,506
  38,261
  42,170
  46,239
  50,475
  54,883
  59,473
  64,253
  69,233
  74,424
  79,837
  85,484
  91,380
  97,537
  103,970
  110,696
  117,731
  125,092
  132,798
  140,868
  149,322
Interest expense (income), $m
  427
  442
  639
  850
  1,073
  1,309
  1,556
  1,815
  2,086
  2,369
  2,664
  2,970
  3,289
  3,621
  3,965
  4,323
  4,695
  5,082
  5,484
  5,902
  6,337
  6,790
  7,262
  7,754
  8,267
  8,802
  9,360
  9,943
  10,552
  11,188
  11,853
Earnings before tax, $m
  3,182
  4,758
  6,707
  8,780
  10,976
  13,293
  15,728
  18,282
  20,953
  23,743
  26,653
  29,685
  32,844
  36,134
  39,559
  43,125
  46,840
  50,710
  54,743
  58,949
  63,337
  67,917
  72,700
  77,697
  82,922
  88,386
  94,104
  100,090
  106,358
  112,926
  119,809
Tax expense, $m
  765
  1,285
  1,811
  2,371
  2,964
  3,589
  4,247
  4,936
  5,657
  6,411
  7,196
  8,015
  8,868
  9,756
  10,681
  11,644
  12,647
  13,692
  14,781
  15,916
  17,101
  18,338
  19,629
  20,978
  22,389
  23,864
  25,408
  27,024
  28,717
  30,490
  32,348
Net income, $m
  2,289
  3,474
  4,896
  6,409
  8,012
  9,704
  11,482
  13,346
  15,296
  17,332
  19,456
  21,670
  23,976
  26,378
  28,878
  31,481
  34,193
  37,018
  39,963
  43,033
  46,236
  49,579
  53,071
  56,719
  60,533
  64,522
  68,696
  73,065
  77,641
  82,436
  87,461

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
  46,992
  52,979
  59,318
  66,003
  73,028
  80,387
  88,081
  96,108
  104,471
  113,176
  122,228
  131,638
  141,418
  151,580
  162,141
  173,119
  184,534
  196,407
  208,763
  221,626
  235,025
  248,987
  263,546
  278,732
  294,580
  311,128
  328,413
  346,476
  365,359
  385,107
Adjusted assets (=assets-cash), $m
  41,357
  46,992
  52,979
  59,318
  66,003
  73,028
  80,387
  88,081
  96,108
  104,471
  113,176
  122,228
  131,638
  141,418
  151,580
  162,141
  173,119
  184,534
  196,407
  208,763
  221,626
  235,025
  248,987
  263,546
  278,732
  294,580
  311,128
  328,413
  346,476
  365,359
  385,107
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
  30,168
  34,011
  38,081
  42,373
  46,882
  51,607
  56,546
  61,699
  67,068
  72,656
  78,468
  84,509
  90,787
  97,311
  104,091
  111,139
  118,467
  126,089
  134,021
  142,279
  150,881
  159,845
  169,191
  178,940
  189,114
  199,738
  210,834
  222,430
  234,553
  247,231
Working capital, $m
  8,472
  4,297
  4,845
  5,425
  6,036
  6,678
  7,351
  8,055
  8,789
  9,554
  10,350
  11,178
  12,038
  12,933
  13,862
  14,828
  15,832
  16,876
  17,961
  19,091
  20,268
  21,493
  22,770
  24,101
  25,490
  26,939
  28,453
  30,033
  31,685
  33,412
  35,218
Total debt, $m
  8,001
  11,410
  15,176
  19,163
  23,368
  27,786
  32,416
  37,255
  42,304
  47,564
  53,040
  58,734
  64,652
  70,804
  77,196
  83,839
  90,744
  97,924
  105,392
  113,164
  121,255
  129,683
  138,465
  147,622
  157,174
  167,143
  177,551
  188,424
  199,786
  211,663
  224,084
Total liabilities, $m
  26,149
  29,558
  33,324
  37,311
  41,516
  45,934
  50,564
  55,403
  60,452
  65,712
  71,188
  76,882
  82,800
  88,952
  95,344
  101,987
  108,892
  116,072
  123,540
  131,312
  139,403
  147,831
  156,613
  165,770
  175,322
  185,291
  195,699
  206,572
  217,934
  229,811
  242,232
Total equity, $m
  20,024
  17,434
  19,655
  22,007
  24,487
  27,093
  29,824
  32,678
  35,656
  38,759
  41,988
  45,347
  48,838
  52,466
  56,236
  60,154
  64,227
  68,462
  72,867
  77,451
  82,223
  87,194
  92,374
  97,775
  103,409
  109,289
  115,428
  121,841
  128,543
  135,548
  142,875
Total liabilities and equity, $m
  46,173
  46,992
  52,979
  59,318
  66,003
  73,027
  80,388
  88,081
  96,108
  104,471
  113,176
  122,229
  131,638
  141,418
  151,580
  162,141
  173,119
  184,534
  196,407
  208,763
  221,626
  235,025
  248,987
  263,545
  278,731
  294,580
  311,127
  328,413
  346,477
  365,359
  385,107
Debt-to-equity ratio
  0.400
  0.650
  0.770
  0.870
  0.950
  1.030
  1.090
  1.140
  1.190
  1.230
  1.260
  1.300
  1.320
  1.350
  1.370
  1.390
  1.410
  1.430
  1.450
  1.460
  1.470
  1.490
  1.500
  1.510
  1.520
  1.530
  1.540
  1.550
  1.550
  1.560
  1.570
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
  3,474
  4,896
  6,409
  8,012
  9,704
  11,482
  13,346
  15,296
  17,332
  19,456
  21,670
  23,976
  26,378
  28,878
  31,481
  34,193
  37,018
  39,963
  43,033
  46,236
  49,579
  53,071
  56,719
  60,533
  64,522
  68,696
  73,065
  77,641
  82,436
  87,461
Depreciation, amort., depletion, $m
  1,894
  2,155
  2,429
  2,720
  3,027
  3,349
  3,686
  4,039
  4,407
  4,791
  5,190
  5,605
  6,036
  6,485
  6,951
  7,435
  7,938
  8,462
  9,006
  9,573
  10,163
  10,777
  11,417
  12,085
  12,781
  13,508
  14,267
  15,060
  15,888
  16,754
  17,659
Funds from operations, $m
  5,790
  5,628
  7,325
  9,129
  11,039
  13,052
  15,168
  17,385
  19,703
  22,123
  24,646
  27,275
  30,013
  32,863
  35,829
  38,917
  42,132
  45,480
  48,969
  52,606
  56,399
  60,357
  64,488
  68,804
  73,314
  78,030
  82,963
  88,125
  93,529
  99,190
  105,120
Change in working capital, $m
  970
  514
  547
  580
  611
  642
  673
  704
  734
  765
  796
  828
  861
  894
  929
  966
  1,004
  1,044
  1,086
  1,130
  1,176
  1,225
  1,277
  1,331
  1,389
  1,449
  1,513
  1,581
  1,652
  1,727
  1,806
Cash from operations, $m
  4,820
  5,114
  6,778
  8,550
  10,428
  12,410
  14,495
  16,681
  18,969
  21,358
  23,850
  26,447
  29,152
  31,968
  34,899
  37,951
  41,128
  44,436
  47,883
  51,476
  55,222
  59,131
  63,211
  67,473
  71,926
  76,581
  81,450
  86,544
  91,878
  97,463
  103,314
Maintenance CAPEX, $m
  0
  -1,899
  -2,155
  -2,429
  -2,720
  -3,027
  -3,349
  -3,686
  -4,039
  -4,407
  -4,791
  -5,190
  -5,605
  -6,036
  -6,485
  -6,951
  -7,435
  -7,938
  -8,462
  -9,006
  -9,573
  -10,163
  -10,777
  -11,417
  -12,085
  -12,781
  -13,508
  -14,267
  -15,060
  -15,888
  -16,754
New CAPEX, $m
  -1,278
  -3,580
  -3,843
  -4,070
  -4,292
  -4,509
  -4,725
  -4,939
  -5,153
  -5,369
  -5,588
  -5,812
  -6,041
  -6,278
  -6,524
  -6,780
  -7,048
  -7,328
  -7,622
  -7,932
  -8,258
  -8,602
  -8,964
  -9,346
  -9,749
  -10,175
  -10,623
  -11,097
  -11,596
  -12,123
  -12,678
Cash from investing activities, $m
  -2,006
  -5,479
  -5,998
  -6,499
  -7,012
  -7,536
  -8,074
  -8,625
  -9,192
  -9,776
  -10,379
  -11,002
  -11,646
  -12,314
  -13,009
  -13,731
  -14,483
  -15,266
  -16,084
  -16,938
  -17,831
  -18,765
  -19,741
  -20,763
  -21,834
  -22,956
  -24,131
  -25,364
  -26,656
  -28,011
  -29,432
Free cash flow, $m
  2,814
  -366
  779
  2,050
  3,416
  4,874
  6,421
  8,056
  9,776
  11,582
  13,472
  15,446
  17,506
  19,654
  21,891
  24,220
  26,645
  29,170
  31,799
  34,537
  37,391
  40,367
  43,470
  46,709
  50,091
  53,625
  57,318
  61,181
  65,222
  69,452
  73,882
Issuance/(repayment) of debt, $m
  678
  3,524
  3,766
  3,988
  4,205
  4,418
  4,629
  4,839
  5,049
  5,261
  5,475
  5,694
  5,919
  6,151
  6,392
  6,643
  6,905
  7,180
  7,468
  7,772
  8,091
  8,428
  8,783
  9,157
  9,552
  9,969
  10,409
  10,872
  11,362
  11,878
  12,421
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
  3,524
  3,766
  3,988
  4,205
  4,418
  4,629
  4,839
  5,049
  5,261
  5,475
  5,694
  5,919
  6,151
  6,392
  6,643
  6,905
  7,180
  7,468
  7,772
  8,091
  8,428
  8,783
  9,157
  9,552
  9,969
  10,409
  10,872
  11,362
  11,878
  12,421
Total cash flow (excl. dividends), $m
  1,813
  3,158
  4,545
  6,038
  7,621
  9,292
  11,051
  12,895
  14,825
  16,842
  18,947
  21,140
  23,425
  25,805
  28,283
  30,863
  33,550
  36,349
  39,267
  42,309
  45,482
  48,795
  52,253
  55,866
  59,643
  63,594
  67,727
  72,053
  76,583
  81,330
  86,304
Retained Cash Flow (-), $m
  503
  -2,111
  -2,221
  -2,352
  -2,480
  -2,606
  -2,731
  -2,854
  -2,978
  -3,103
  -3,229
  -3,358
  -3,491
  -3,628
  -3,770
  -3,918
  -4,073
  -4,235
  -4,405
  -4,584
  -4,772
  -4,971
  -5,180
  -5,401
  -5,634
  -5,880
  -6,139
  -6,413
  -6,701
  -7,006
  -7,326
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
 
  5,748
  2,324
  3,686
  5,141
  6,686
  8,320
  10,041
  11,847
  13,739
  15,717
  17,782
  19,934
  22,177
  24,513
  26,945
  29,477
  32,115
  34,862
  37,725
  40,710
  43,824
  47,073
  50,465
  54,009
  57,714
  61,587
  65,640
  69,882
  74,324
  78,977
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
 
  5,511
  2,128
  3,208
  4,233
  5,183
  6,038
  6,783
  7,405
  7,893
  8,240
  8,444
  8,507
  8,432
  8,229
  7,911
  7,491
  6,988
  6,420
  5,809
  5,173
  4,533
  3,906
  3,308
  2,751
  2,245
  1,797
  1,409
  1,081
  811
  595
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 (Valero) is an independent petroleum refiner and ethanol producer. The Company's segments include refining, ethanol and Valero Energy Partners LP (VLP). The refining segment includes its refining operations and the associated marketing activities. The ethanol segment includes its ethanol operations and the associated marketing activities, and logistics assets that support its ethanol operations. The Company owns logistics assets (crude oil pipelines, refined petroleum product pipelines, terminals, tanks, marine docks, truck rack bays and other assets) that support its refining operations. Some of these assets are owned by VLP, which is a midstream master limited partnership owned by the Company. VLP's assets include crude oil and refined petroleum products pipeline and terminal systems in the United States Gulf Coast and the United States Mid-Continent regions. Its refineries produce conventional gasolines, premium gasolines and lubricants, among others.

FINANCIAL RATIOS  of  Valero Energy (VLO)

Valuation Ratios
P/E Ratio 16.3
Price to Sales 0.5
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 7.8
Price to Free Cash Flow 10.6
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 13.6% 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 441.708 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 $36.6 billion.

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COMPANY NEWS

▶ How Refining Stocks Performed in 4Q17   [10:30AM  Market Realist]
▶ How Valero Used Its Cash Flow Surplus   [09:02AM  Market Realist]
▶ Comparing Valeros Debt Position   [07:32AM  Market Realist]
▶ Could Valeros Ethanol Earnings Fall in 4Q17?   [Nov-16-17 03:05PM  Market Realist]
▶ Trends in Valeros Oil Spreads in 4Q17   [01:35PM  Market Realist]
▶ Could Valeros Refining Margin Expand in 4Q17?   [12:02PM  Market Realist]
▶ A Look at Valeros Refining Margins in 3Q17   [12:02PM  Market Realist]
▶ How MPC, VLO, ANDV, and PSX Fared in 3Q17   [Nov-15-17 04:45PM  Market Realist]
▶ Whats Andeavors Stock Price Forecast for the Next 9 Days?   [Nov-13-17 09:01AM  Market Realist]
▶ Valero donates $8.4 million to SAISD's Pipeline to College Success Program   [Nov-08-17 07:20PM  American City Business Journals]
▶ MLP Rating Updates Last Week   [03:42PM  Market Realist]
▶ Valero Energy Partners marks four quarters of revenue above $100 million   [Oct-27-17 02:10PM  American City Business Journals]
▶ Valero Energy Partners buys Port Arthur assets for $508 million deal   [Oct-26-17 04:15PM  American City Business Journals]
▶ Valero Energy beats Street 3Q forecasts   [06:59AM  Associated Press]
▶ Is It Time To Buy Valero Energy Partners LP (VLP)?   [Oct-25-17 03:28PM  Simply Wall St.]
▶ Trading oil after Aramco IPO: 3 plays   [Oct-23-17 05:00PM  CNBC Videos]
▶ Oil Fundamentals Overturn Geopolitical Risk   [Oct-17-17 03:00PM  Oilprice.com]
▶ Hurricane impact on the energy sector   [Oct-16-17 03:41PM  CNBC Videos]
▶ Why Has Short Interest in Valero Risen ahead of Q3 Earnings?   [Oct-13-17 07:37AM  Market Realist]
▶ Valeros Stock Performance ahead of 3Q17 Earnings   [Oct-11-17 06:07PM  Market Realist]
▶ Understanding Valeros Q3 Crack Indicators   [04:35PM  Market Realist]
▶ What Andeavors 3Q17 Refining Index Reveals   [07:35AM  Market Realist]
▶ MPC, ANDV, VLO, PSX: Refining Stocks 3Q17 Performance   [Oct-10-17 04:36PM  Market Realist]
▶ Aggressive OPEC Pushes Oil Prices Up   [03:00PM  Oilprice.com]
▶ Comparing Andeavors Valuation to Peers   [Oct-09-17 07:39AM  Market Realist]
▶ Valero Energy Has Become A 'Show Me' Story Now   [Oct-06-17 12:10PM  Benzinga]
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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