Energy Stock Running Hot Ahead of Earnings

VLO has nearly doubled in value year-over-year

Oct 20, 2021 at 11:13 AM
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Valero Energy Corporation (NYSE: VLO) is in focus today, after Piper Sandler upped the stock's price target to $83 from $75. At last check, VLO was up 0.8% to trade at $80.33, with the refinery company set to report earnings tomorrow before the open. 

Valero has a muted history of post-earnings action, averaging a 3.9% move in the last eight quarters, regardless of direction. This time around, the options market is pricing in a 4% move for VLO on Thursday, which would be the stock's largest post-earnings move -- again regardless of direction -- since July 2020.

Valero stock has benefitted greatly from surging energy prices in 2021, tacking on 43% year-to-date and almost doubling in value year-over-year. The shares' 320-day moving average has served as a springboard this fall, with only three closes below this trendline since early February.

VLO Stock Chart

Moreover, Valero Energy stock is an intriguing option for dividend investors. VLO sports a decent forward price-earnings ratio of 15.50, after the Valero Energy returned to profitability in the second quarter of 2021, providing some hope of a potential recovery. The petroleum company offers a forward dividend of $3.92 with a dividend yield of 5.02%, which is on the higher end for dividend yield values especially amongst large cap companies like VLO.

Fundamentally speaking, though, Valero Energy stock’s fundamentals fail to provide a long-term sense of security for investors. VLO has struggled to grow revenues consistently and has experienced a near-constant net income decline over multiple years. Currently, Valero Energy's revenues are down 14% and net income has decreased by about $5.4 billion since fiscal 2017. Valero’s balance sheet doesn’t offer much more assurance either, with a cash total of $3.57 billion and a debt total of $14.68 billion.

The good news for prospective options traders is that premium is reasonably priced right now. VLO's Schaeffer's Volatility Index (SVI) of 33% sits higher than 7% of readings from the past 12 months, suggesting options players are pricing in low volatility expectations for the stock at the moment. Plus, the stock's Schaeffer's Volatility Scorecard (SVS) comes in at 94 (out at 100.) In other words, the security has exceeded options traders' volatility expectations in the last year.


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