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QS Research · Michael Burry's Scion Capital analyst template · 2006

VALERO ENERGY CORP/TX (VLO)

As of 2026-11-02 · 11/15 boxes filled from SEC filings and market data

Conclusion: SHORT

Conviction high · base case -64% · downside -72% · upside -56%

The market is paying $385.47 for TTM peak earnings: TTM EBITDA is $17.63B and the stock trades at 6.0x EV/EBITDA (N13, N26), while FY2020-FY2025 normalized EBITDA is only $5.9B (S2). Applying a mid-cycle 6.5x EV/EBITDA to $5.9B gives $38.35B EV, plus $0.18B net cash after leases = $38.53B equity, or $138/share (-64% vs today); the 5.0x downside gives $106 (-72%) and the 8.0x upside gives $170 (-56%) (S2, N1, N5, N20, N21, N22). The current windfall comes from extraordinary crack spreads and supply disruptions (S27), while Valero's operating income has no stable pricing power across the cycle (S26). The strong balance sheet and buybacks do not close a roughly 60-70% value gap, so the stock is a short on earnings normalization.

Key numbers

The 15 boxes

  1. ✓ 1. Long-form business notes

    Valero operates three reportable segments—refining, renewable diesel, and ethanol—selling petroleum products and low-carbon fuels primarily in the U.S., Canada, U.K., Ireland, and Latin America. As of the oldest annual report (FY2020), it owned 15 refineries with about 3.2 million BPD throughput capacity, a consolidated JV in renewable diesel, and 13 ethanol plants. Revenue rose from $64.91B in FY2020 to a peak of $176.38B in FY2022, then fell to $122.69B in FY2025; operating income swung from -$1.58B to $15.69B and back to $3.18B, showing cyclicality. The latest FY2025 filing highlights that proposed RFS Set II rules and credit price volatility may pressure refining and renewable diesel margins.

  2. ○ 2. Competitive advantage

    Valero's main advantage appears to be scale and logistics: 15 refineries with about 3.2 million BPD throughput capacity, plus marine and pipeline access to U.S., Canadian, U.K., Irish, and Latin American markets (FY2025). Its $6.0 billion low-carbon fuel investment and Renewable Diesel/Ethanol segments partially offset RFS/LCS compliance costs. Operating income (FY2020-FY2025) swung from -$1.58B to a $15.69B peak and back to $3.18B, showing no stable pricing power or durable margin. The sources do not describe any brand, switching-cost, or licence advantage.

  3. ✓ 3. 10-Q takeaways

    Q3 2026 results were exceptionally strong: Valero reported net income attributable to stockholders of $6.8B, up from $1.1B a year earlier, on revenues of $46.1B. Refining led with operating income of $8.782B, driven by sharply higher gasoline and distillate margins, while Renewable Diesel and Ethanol also improved. Cash generation was $13.9B for the first nine months, lifting cash to $10.0B and liquidity to $14.7B; $7.3B was returned to stockholders. The Q4 2026 outlook cites resilient demand but Middle East conflict supply disruptions and low product inventories, and risk factors are unchanged from the FY2025 10-K.

  4. ✓ 4. Corporate governance
  5. ✓ 5. Overview of the prior 3 years of 8-K filings
  6. ✓ 6. Other significant filings
  7. ✓ 7. Chronology of significant news and events
  8. ✓ 8. Comparables valuation interpretation
  9. ✓ 9. Insider trading interpretation
  10. ○ 10. Earnings-call notes
  11. ○ 11. Impression of the shareholder letter
  12. ○ 12. Scuttlebutt overview
  13. ✓ 13. Valuation and risk/reward summary
  14. ✓ 14. Current price suppression and potential catalysts

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