Goldman Sachs Revises Valero Energy’s Rating from ‘Sell’ to ‘Neutral’

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Goldman Sachs Revises Valero Energy’s Rating from ‘Sell’ to ‘Neutral’

Goldman Sachs has upgraded its outlook on Valero Energy Corp (NYSE:VLO), moving the stock from a ‘Sell’ rating to ‘Neutral’. This adjustment is attributed to a stronger long-term margin outlook and a more balanced valuation profile.

The investment firm has set a new target price of $127, indicating a potential total return of 15%.

Analysts at Goldman Sachs identified three primary drivers for this upgrade:

• Revised consensus estimates that align more closely with expectations of a slowdown in refinery profitability.
• An improved crude oil environment, highlighted by OPEC’s introduction of additional heavy oil supplies.
• A more favorable supply landscape following significant refinery closures, such as the shutdown of LyondellBasell’s Gulf Coast facility.

Despite ongoing demand uncertainties, Goldman Sachs emphasized Valero’s robust balance sheet and its capacity for strong cash flow generation. This financial health is anticipated to bolster shareholder returns, with an expected return on capital hovering around 9%.

However, it was noted that Valero’s shares have lagged behind those of Marathon Petroleum (NYSE:MPC) and the Energy Select Sector SPDR Fund (NYSE:XLE) this year. Nonetheless, over a nearly five-year span, Valero’s shares have impressively outperformed the S&P 500 by approximately 119%.

This strong performance is credited to the resurgence in oil demand, consistent dividend distributions, and operational excellence. Analysts underscored the company’s strategic capital allocation, anticipated favorable crude oil price differentials, and robust free cash flow, concluding that the risk/return profile appears more balanced now.