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    VLO · NYQ · Energy

    Valero Energy Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 124.19

    Market price

    USD 413.28

    Implied upside

    -70.0%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages just 0.73% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.99% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 124.19-70.0%
    Exit multiple
    USD 221.22-46.5%
    Market price
    USD 413.28

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn4bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 108.7bnUSD 96.3bnUSD 85.3bnUSD 75.6bnUSD 67.0bn-11.4%
    EBITUSD 6.4bnUSD 5.7bnUSD 5.0bnUSD 4.4bnUSD 3.9bn-11.4%
    NOPATUSD 5.1bnUSD 4.5bnUSD 4.0bnUSD 3.5bnUSD 3.1bn-11.4%
    Add depreciation & amortisationUSD 2.2bnUSD 1.9bnUSD 1.7bnUSD 1.5bnUSD 1.3bn-11.4%
    Less capital expenditureUSD -2.2bnUSD -1.9bnUSD -1.7bnUSD -1.5bnUSD -1.3bn-11.4%
    Less increase in working capitalUSD -969.9mUSD -859.4mUSD -761.4mUSD -674.6mUSD -597.7m-11.4%
    Free cashflow to firmUSD 4.1bnUSD 3.6bnUSD 3.2bnUSD 2.8bnUSD 2.5bn-11.4%
    Discount factor0.96020.88530.81620.75250.6938-
    Present valueUSD 3.9bnUSD 3.2bnUSD 2.6bnUSD 2.1bnUSD 1.7bn-18.3%
    Present Value Of The ForecastUSD 13.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.711Reported 0.568, pulled toward 1.0 (Blume)
    Cost of equity8.91%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 119.0bn91.0% of capital
    Total debtUSD 11.7bn9.0% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC8.46%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 124.19

    70% of EV

    Forecast FCFF, final year
    USD 2.5bn
    Capex at depreciation, working capital in reinvestment
    USD 3.1bn
    Less reinvestment at g/ROIC (14.4% of NOPAT)
    USD -449.1m
    Capitalised
    USD 2.7bn
    ROIC (reported)
    17.3%
    Terminal value, undiscounted
    USD 45.8bn
    Terminal value, discounted
    USD 31.8bn
    Enterprise value
    USD 45.4bn
    Less net debt
    USD 7.0bn
    Equity value
    USD 38.4bn

    Exit at 16.9x EBITDA

    Value per shareUSD 221.22

    82% of EV

    Terminal value, undiscounted
    USD 89.0bn
    Terminal value, discounted
    USD 61.8bn
    Enterprise value
    USD 75.4bn
    Less net debt
    USD 7.0bn
    Equity value
    USD 68.4bn

    Spread between methods: 56%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.46%165.14176.82191.38210.10235.05
    7.46%135.55142.61151.04161.32174.14
    8.46%114.44118.95124.19130.35137.70
    9.46%98.62101.62105.02108.92113.43
    10.46%86.3288.3690.6493.1996.09

    Outlined: this model. Green text: above today's price of 413.28. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year-11.4%11.0%+22.4pp
    EBIT margin5.9%16.7%+10.8pp
    Discount rate8.5%4.4%-4.1pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.