Stock Performance
During the last four quarters, Valero’s stock price has fluctuated between $60.83 on 05/2020 and $72.14 on 04/2021 (Figure 1). During this period, the lowest stock price was spotted at $37.88, whereas the highest reached $84.39 one month ago. In March 2020, a powerful oil prices shock was caused by the disagreement between OPEC members, subsequent oversupply of oil, and the general decline in demand due to worldwide health measures (restricted travel and closed businesses). Nevertheless, oil prices started to rebound by the autumn of 2020, thanks to the OPEC agreement on crude oil production cuts. Optimism regarding vaccination led to market stabilization by the end of the year. Alamgir and Amin (2021) found that higher oil prices normally drive stock prices. Thus, all mentioned events explain Valero’s stock price fluctuations during last year.
If we look at a 3-year timeframe, it becomes evident that the highest stock price was three years ago – $123.78 in 2018 (NASDAQ, 2021a). The 5-yr timeframe reveals that Valero’s stock price has been steadily growing from May 2016 ($54.70) until May 2018 ($121.20). During 2018 the oil prices were high at the beginning of the year. They then suddenly plummeted because of doubled shale oil production, OPEC efforts to offset losses of Iranian oil, and slightly decreased demand. Company value is reflected in the price and constitutes the amount of money the public wants to pay for a business share. In this case, the company currently becomes more valuable in the eyes of investors.
One of the main Valero’s competitors is Chevron Corporation. As can be seen from the chart below the last four quarters had a similar trend in price fluctuations. It went down from $100.81 on June 1, 2020, to $69.50 on October 26, 2020 (NASDAQ, 2021b). Following this period, there was a more stable growth until now compared to Valero performance. The 5-yr timeframe reveals that the highest stock price was $126.43 in June 2018, while the lowest one in October 2020 ($69.50). As it can be seen, the fluctuations in prices of competitors’ share have a similar trend over the five-year course. Similar effects can be explained by the same external and market forces: OPEC decisions, COVID-19, and oil supply rate. Nevertheless, the higher overall stock price of Chevron means it is more popular among investors. It also was more stable before the coronavirus pandemic and oil crisis.
Key Drivers
Total assets of Valero declined by 3.88% year-over-year in 2020 and were $51.774B. Total equity is $19.642B, and total liabilities are $32.132B. Contrary, Chevron Corporation’s total assets slightly increased to $239.790B, total liabilities were $107.064B, and total equity reached $132.726B (NASDAQ, 2021b). It seems that Chevron is a larger company that can boast higher equity. Regarding gross profit, Chevron earned 36.23% less than a year before, whereas Valero lost $788,000 (115.49% decline YoY) (NASDAQ, 2021a). In general, both companies faced a drastic decline in total revenues in 2020, mainly due to economic upheaval and uncertainty caused by COVID-19. The pandemic reduced the number of logistic and transportation operations worldwide, causing underperformance of the entire market. Currently, Valero does not have enough operating cash flow to cover its debts. Hence, another financial item that should be considered is the Debt-to-Equity ratio. Chevron’s D/E ratio for 2020 was 0.81, while Valero’s one was 1.43.
After analyzing the presented financial items, it becomes clear that Valero’s investment might be more beneficial in the long run since it is expected to yield more. Nevertheless, buying its stocks is riskier than Chevron ones since it has a higher D/E ratio and lower stock price. Another thing that affects recommendation is that Chevron increased its dividends and can cover them with its operating cash flow. It also proved to be resilient in times of oil crisis due to higher balance sheet strength. For that reason, I would recommend buying Chevron stocks for investors who have a low tolerance to risk and want to invest in stable corporations.
References
NASDAQ. (2021a). Valero Energy Corporation (VLO). [Stock quote]. Web.
NASDAQ. (2021b). Chevron Corporation (CVX). [Stock quote]. Web.
Alamgir, F., & Amin, S. B. (2021). The nexus between oil price and stock market: Evidence from South Asia. Energy Reports, 7(1), 693-703. Web.