Valero Energy Analyst Is No Longer Bearish: Here Are 3 Reasons Why

Late last week, Valero Energy Corp (NYSE:VLO) reported better-than-declined quarterly profits.

So far this year, the company's stock has underperformed its closest peer, Marathon Petroleum Corp (NYSE:MPC) by around 6%. It also underperformed the Energy Select Sector SPDR Fund (NYSE:XLE) by about 3%, according to Goldman Sachs.

The Valero Energy Analyst: Analyst Neil Mehta upgraded the rating from Sell to Neutral, while raising the price target from $115 to $127.

The Valero Energy Thesis: Many of the headwinds that resulted in the stock's underperformance are now reversing, Mehta said in the upgrade note.

Check out other analyst stock ratings.

The analyst stated three reasons for the upgrade:

• Following consensus revisions, expectations better reflect "the deceleration in refining profitability with VLO 2025 EPS having been negatively revised by ~50% over the last year," he said.
• The crude environment seems to be improving and the OPEC had begun adding barrels into the market, Mehta mentioned. "We believe the incremental heavy barrels should support more favorable crude differentials and support margins at Valero," he further wrote.
• Although the demand environment in uncertain, the supply side is faced with larger refining closures.

"We additionally highlight the company's relatively healthy balance sheet and strong cash flow generation which we believe supports the company's continued commitment to shareholder returns," Mehta said.

Price Action: Shares of Valero Energy had risen by 0.32% to $115.14 at the time of publication on Tuesday.

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