Mizuho downgrades VLO stock amid sector reassessment

On Friday, Mizuho Securities adjusted its stance on Valero Energy Corporation stock (NYSE:VLO), moving its rating from Buy to Neutral while setting a price target at $173.00. This shift reflects a broader reassessment of the refining sector following recent updates for the fourth quarter of 2023.

The refining industry has surpassed expectations due to a surge in demand and potential short-term supply disruptions, such as the delay in the Dangote refinery operations and Russian refining outages.

Despite these positive trends and the industry's enhanced asset performance, cost control, and margin capture, Valero's stock prices have risen more rapidly than the actual crack spreads, a key measure of refining profitability.

Mizuho's valuation approach is based on a Net Asset Value (NAV) model that focuses on long-term industry fundamentals rather than short-term market dislocations. Although the firm has increased price targets by approximately 16% across the refining sector, they project a modest 2.4% potential upside from current market prices.

As a result of this analysis, Mizuho has decided to adopt a more cautious position by downgrading Valero Energy to Neutral. The firm also adjusted ratings for other companies in the sub-sector, with PBF Energy (NYSE:PBF) receiving a similar downgrade to Neutral and Delek US Holdings (NYSE:DK) being tagged as Underperform. These changes reflect Mizuho's strategy to move to the sidelines in the face of the current market dynamics within the refining industry.

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