Company News SummaryAmine BekkiValero Energy Corporation is an international producer and wholesale marketer of fuels, other petrochemicals and power. It was created on January 1, 1980 as a natural gas transportation business and then few years later diversified to the refining business. The Company's 15 refineries that it owns now have a throughput capacity of 3 million barrels per day making it the largest independent refiner and can produce gasolines, diesel fuels, jet fuel, asphalt, lubricants, and other refined products. The Company markets refined products through 7,400 outlets. The Company also entered to the renewable fuels business and purchased 11 ethanol plants and now operates in the United States, Canada, and the United Kingdom. We all know the crude oil prices are not doing well, and the biggest winners in this situation are the refiners. It is the golden age for refiners, thats why refining is one of the best places to be in right now. However, on the long term, margins may weaken from this record level, but they will still be good enough for plants to operate at high rates. To stabilize its returns Valero announced that they are planning to diversify by buying pipelines and other assets that offer more stable profits because theyre less impacted by commodity prices.From a financial statements analysis point of view, the company has a solid financial position with a reasonable capital structure (D/E of 28.98), and notable excess return on both capital and equity: ROE - Cost of Equity = 11.2 % and ROC - Cost of Capital = 8.69%. We feel that this outweighs their weak profit margin of 4.15% at the beginning of the year.The business of oil refining and marketing is negatively correlated with crude prices, thats why it considered as a tailwind for them, because the companies use oil as an input from which they derive refined products like gasoline, so the lower the oil price, the higher will be their profitsValero's latest 10Q showed that earnings numbers reflected this trend as net income climbed 30% from 1.1 billion/quarter to $1.4 billion, corresponding to an EPS of $2.79/share, beating the analysts estimates of $2.66. It has a low forward PE ratio of 8.86, and still a relatively reasonable growth, beta and it has a very good payout ratio through dividends and buybacks, in Q3 only, the company repurchased 17.2 million shares and its year-to-date dividends and stock buybacks equaled $2.7 billion thats why I believe it is cheap compared to a sector (oilfield services) MEDIAN of 18.4% . From a technical analysis point of view, on the big picture, since 2012 the company is doing very well, the trend of the stock price is upward sloping with higher highs and higher lows.The company is rated BBB+ (Baa1) due to its large operating scale, solid diversification of downtime risk with their refineries spread all over the US, Canada and the UK. And also because they are paying down debt and they have cash in hand which would allow them to meet their obligations, expand and build new facilities.Valero is also reinvesting the money it is generating to upgrade its processing capabilities of crude oil thats why the margins are expected to look even better in the near future and also more stable because it is expanding in the fuels and gas transportation business, which is a sector that is less cyclical and less dependent on crude prices.Looking at institutional investors who are putting their money in Valero, according to InsiderMonkey.com, we find that, 57 hedge funds had VLO in their portfolio.For dividends investors, Valero is sharing profits with shareholders and increased dividend payments by cumulative percentage of 81% this year (25% in Q3 and 45% in Q1) to reach a dividends yield of 2.9% and the stock is also pretty liquid with an annual trading volume over shares outstanding ratio of 3.96, corresponding to 5.6 million shares exchanging hands daily.Conclusion:Although most of the energy sector is struggling to perform with the decline in crude prices, Valero as a refiner taking oil as an input is operating their units at record high capacity to take advantage of the low crude prices. Its stock price has increased by 45.27% year to day, outperforming the S&P by far. It adds value to investors through dividends and capital appreciation. Thats why I recommend this stock.Appendix: figures:

Company NameValero Energy Corp

Industry GroupOilfield Services/Equip.

CountryUnited States

Bottom up levered beta1.25

Cost of equity in US$9.40%

Cost of capital in US$7.71%

PV of lease debt$1,092.49

Total Debt$6,383.00

Cash$4,191.00

Cash/ Firm Value12.59%

Annual trading volume/Shares outs3.96

Book Debt to Equity Ratio35.49%

Market Debt to Equity ratio28.97%

Interest coverage ratio14.33

Forward PE8.86

PBV1.23

EV/EBITDA3.77

Payout ratio14.11%

Return on Equity20.60%

Return on Capital 16.40%

Effective Tax Rate31.97%

% held by institutions84.12%

(Debt issued - repaid)-$267.00

Reinvestment Rate6.35%