The energy sector is caught in a fascinating game of tug of war as short interest in energy stocks surges. Such rising short interest can sometimes trigger a “short squeeze,” forcing short sellers to shares to cover their positions, ultimately driving prices higher. December saw bearish bets on energy stocks climb to 2.35% from 2.22% in November, fueled by a bleak global demand outlook and a potential supply glut.
Analysts from major Wall Street banks, including Goldman Sachs and JPMorgan, have trimmed their oil price forecasts for the year, further dampening sentiment.
Yet, the sector has its bright spots. Oil (CLH25) prices have rebounded, lifting the Energy Select Sector SPDR (XLE) by 9.4% so far in the new year. Optimism stems from cooling inflation, central banks easing rates, and tighter sanctions on Russian oil.
Valero Energy (VLO) is one of the most-shorted energy stocks, and bearish sentiment against this refining giant has surged. Valero operates some of the most complex refining systems in the world, turning crude oil into fuels and petrochemicals.
Despite mounting short bets, most analysts remain bullish, projecting double-digit upside potential. Beyond the skepticism, this dividend-paying stock could offer a compelling opportunity for investors willing to gamble on a bullish wave.
About Valero Energy Stock
San Antonio-based Valero Energy (VLO), founded in 1980, is a leader in producing and distributing transportation fuels and petrochemicals. Operating 15 refineries across the U.S., Canada, and the U.K., Valero boasts a combined throughput capacity of 3.2 million barrels per day, delivering high-quality gasoline, diesel, jet fuel, and asphalt.
Beyond traditional energy, Valero’s commitment to innovation shines through its thriving ethanol (FLG25) and renewable diesel operations, reflecting its forward-thinking approach to sustainable energy solutions. With a market capitalization of $44.65 billion, Valero not only powers global transportation, but also shapes the future of energy.
VLO stock is trading 23.7% below its April peak of $184.79, with a 6% dip over the past six months. The stock is up just 11.7% over the past 52 weeks, underperforming the S&P 500 Index ($SPX), although its shares have rallied 5% over the past five days.
Valero Energy knows how to keep shareholders smiling. On Jan. 16, Valero declared a $1.13 per share quarterly dividend, payable March 3. This brings its forward yield to 3.2% with a $4.52-per-share annualized payout.
Adding to its allure, VLO stock is priced at a modest 17.3x forward earnings and 0.34x sales, trading lower than its own five-year averages. With steady returns and a valuation that suggests untapped potential, Valero might be the undervalued gem investors are searching for.
Valero’s Mixed Q3 Results
On Oct. 24, Valero Energy reported its Q3 earnings results, delivering mixed signals. While the company’s revenue hit $32.9 billion, sailing past estimates, its adjusted EPS amounted to $1.14, missing the projections due to challenges in refining throughput and margins. Refining segment adjusted operating income plunged to $565 million from last year’s $3.4 billion, driven by lower volumes and thinner margins
The ethanol segment also stumbled, with profits sliding to $153 million from $197 million, as ethanol margins shrank. Similarly, renewable diesel faced a dip in operating income to $35 million despite higher sales volumes, impacted by softer margins. Refining throughput volumes averaged 2,884 MBbls/d, down from 3,022 MBbls/d last year, with the Gulf Coast dominating contributions at 62.4%.
Valero maintained a strong cash position of $5.2 billion as of Sept. 30, 2024, even with $8.4 billion in debt and $2.5 billion in finance lease obligations.
During the quarter, shareholders benefited too, with $907 million returned through dividends and share buybacks - a testament to Valero’s commitment to strategic capital allocation. The payout amounted to 84% of the adjusted net cash provided by operations.
Analysts tracking Valero Energy expect the company’s profit to reach $7.93 per share in fiscal 2024 and then rise 1% to $8.01 per share.
What Do Analysts Expect for Valero Energy Stock?
VLO stock has a consensus “Strong Buy” rating overall. Among the 18 analysts covering the stock, 15 suggest a “Strong Buy,” two give a “Hold,” and the remaining one advises a “Strong Sell.”
The average analyst price target of $148.94 indicates potential upside of 5.6% from the current price levels. The Street-high price target of $160 suggests that the stock could rally as much as 13.4%.
