Few large-cap stocks offer a more direct way to capitalize on today’s powerful transportation-fuel margins than Valero Energy VLO).
With VLO sporting a Zacks Rank #1 (Strong Buy), it’s noteworthy that Valero’s Zacks Oil and Gas-Refining and Marketing Industry is currently in the top 10% of over 240 Zacks industries.
In addition to its strong buy rating, VLO also checks an overall “A” VGM Zacks Style Scores grade for the combination of Value, Growth, and Momentum.
This comes as U.S. gasoline prices have climbed back above $4 per gallon. At the same time, refining margins have reached historically elevated levels as tight global product supplies stemming from disruptions in the Middle East have collided with resilient transportation demand.
Bullish Refining Margins
The 3-2-1 crack spread — a widely watched proxy for refinery profitability — recently reached record territory, creating an exceptionally favorable backdrop for efficient U.S. refiners.
As provided by the Chicago Mercantile Exchange (CME) Group and visualized by TradingView, U.S. refining margins have surged to historic levels, with the closely watched 3-2-1 crack spread approaching $70 per barrel.
This means that the market value of the gasoline and diesel produced from crude oil is running roughly $70 per barrel above the cost of the crude itself—a powerful indicator of the unusually favorable economics facing refiners such as Valero.
In other words, refiners can currently sell the gasoline and diesel produced from a barrel of crude for roughly $70 more than the crude feedstock cost, before accounting for the refinery’s other expenses.
Image Source: CME Group
Valero is Translating that Environment Directly into Earnings Growth
Valero's Refining segment generated $4.5 billion of Q2 operating income, up sharply from $1.3 billion a year ago, while throughput averaged roughly 3 million barrels per day.
More importantly, refining margin per barrel surged to $23.62 from $12.35 in the year-ago period. That combination of high utilization and dramatically stronger margins gives Valero tremendous operating leverage when gasoline and diesel markets tighten.
The earnings picture reflects it. Last month, Valero delivered record quarterly adjusted EPS of $12.54, comfortably topping the Q2 consensus estimate of $9.87 by 27% and surging 450% from earnings of $2.28 per share in the prior year quarter.
Plus, Valero has now exceeded earnings expectations for seven consecutive quarters with an impressive average EPS surprise of 26.8% in its last four quarterly reports.
Image Source: Zacks Investment Research
Surging EPS Revisions and a Reasonable Valuation
Just as encouraging is the direction of analyst estimates. Following the Q2 EPS beat, the forward earnings-revision trend has moved decisively higher in the last month, with Valero's fiscal 2026 and FY27 EPS estimates now spiking over 30% in the last 60 days, respectively.
In the last two months, EPS revisions for the current quarter and next quarter have both spiked over 90%, with Valero’s annual adjusted earnings now expected to surge more than 282% to what would be a new record of $40.62 per share.
Image Source: Zacks Investment Research
And despite a more than 100% year-to-date run-up in VLO shares, Valero’s valuation remains very reasonable at 8X forward earnings.
Image Source: Zacks Investment Research
VLO still trades at a steep discount to the benchmark S&P 500’s 22X forward earnings multiple despite having one of the clearest earnings growth catalysts in the market.
Its valuation is also roughly in line with the broader Oil and Gas-Refining and Marketing industry, which includes notable peers Marathon Petroleum MPC) and Phillips 66 PSX).
Image Source: Zacks Investment Research
Bottom Line
With gasoline prices above $4 per gallon, refining margins exceptionally strong, throughput near 3 million barrels per day, and earnings estimates moving sharply higher, Valero remains one of the clearest large-cap beneficiaries of the current transportation-fuel environment.
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