i think there is a lot of ignorance about VLO, and perception that it is an expensive stock. for instance, VLO recently was named one of the top 10 "most overvalued stocks" in the Barron's Big Money poll of investing retards (mutual fund managers).
during the latest CC Greehey didn't mince words saying the consensus estimate for next year ($14 and change) is totally lowball, and complained that even on that lowball estimate VLO was trading at a 7x forward multiple.
and here is an interview today in Barron's, where a guy says VLO is more expensive than COP on a PE basis. this imo is complete bullshiat. VLO will imo earn at least $17 next year, probably closer to $25, for a $105 stock. last month it earned $2.30 or $27.60 annualized. just taking the 17-25 range, that is a PE range of 4.2 (for $25) to 6.2 (for $17). these guys touting COP say it has a forward PE of 6 based on their above-street estimate. i just have a hard time seeing how 6x to 6.1x PE for COP is a lot cheaper than a range of 4.2x to 6.2x PE for VLO. also, VLO doesn't have to worry about a shrinking RLI like COP.
and the scary thing is, these are guys who are not total energy haters or complete ignoramuses like most of the street. (a year ago, most of the street thought VLO was going to earn $5-6 this year, as indicated by Prudential's antitout calling for a price target of split-adjusted 27.50 Message 20513930 ). so, i think it is still a long ways to go before people get their heads wrapped around VLO and what it will really be earning, so that they can assign a little more realistic multiple.
Fraser: I'll talk about a big-cap company we are getting involved with, ConocoPhillips [COP]. It is just too cheap. Wall Street's earnings estimates are $9 this year and $9 next. We think next year's number looks more like $10 to $11 a share. It is trading at seven times this year's estimate and about six times next year's or thereabouts. It has about $90 billion of market value. That's bigger than we normally invest in, but the value is so compelling.
Why is it so cheap, especially with so much excitement about energy?
Kluiber: They don't have a strong growth profile in their production.
Fraser: They are targeting production growth of about 3%, and that doesn't get people too excited. But if you look at the free cash they will generate, they don't really need huge production growth. One of the other risks, and one reason it might have such a low multiple is, as with all these large international oil companies, it has operations in some unstable places. They have an operation in Venezuela and they're also a 13% shareholder in [Russia's] Lukoil. Both of these operations are working very well currently, but this could be a concern.
One of the nice things about ConocoPhillips is that they've historically struck a good balance in using some of their cash to reinvest in the business, but have used cash to give returns to shareholders, either through dividends or share repurchases. We are long-term bullish on the refining sector, and they are one of the largest refiners in North America. The pure-play refiners like Valero Energy are at higher multiples than all of ConocoPhillips. That implies you are getting the refining part of the business very inexpensively.
online.barrons.com
these guys are obviously bullish on refining and seem to believe it deserves a higher multiple than COP's other segments. so if they followed their own logic and did just a bit of research (like listening to VLO CC's and reading their online presentations) i think they'd be touting VLO instead of COP. after all, VLO is a much lower market cap, growing earnings much faster, is a pure play in a great sector, operates in a politically stable country (unlike COP which has exposure to Venezuela, FSU, etc.), yada yada.
not that 6x is expensive for COP either, mind you. |
