Is Valero Energy Setting Up for a Big Move? – June 28, 2021

Valero Energy Corp. (VLO) is one of the largest independent refiners in the United States. It operates 14 refineries with a total throughput capacity of 3.2 million barrels a day in the United States, Canada, and the United Kingdom.

The majority of the company’s refining plants are in the Gulf coast where it has easy access to the export facilities. This has helped VLO expand its export volumes over the last few years. The firm is also set to benefit from a new standard set by the International Maritime Organization where the proportion of sulfur in marine fuel has declined drastically, which boosts demand for VLO’s distillate fuels.

As of the most recent quarter, the company had $17.6 billion in cash compared with only $734 million in short-term debt. However, its profit margin is negative. Over the past year, sales are down 40%, but analysts forecast revenue to jump 112.4% year over year in the current quarter.

The stock appears quite overvalued with a forward P/E of 105.26. It has shown positive long-term momentum since November, with mixed short-term results as shown in the chart below.

Take a look at the 1-year chart of VLO below with the added notations:

While climbing a rough trendline of support (green), VLO has also formed an important level of resistance at $84 (red), thus creating an ascending triangle pattern. The stock just hit the resistance last month but could now be making another run at that level.

At some point, either $84 or the trendline support will break. A long trade could be entered on a break above $84 with a protective stop placed under the point of entry.

Author: Christian Tharp, CMT