NEW YORK (TheStreet) -- Changing market conditions that could affect profitability have made many investors wary of refining stocks. This is particularly true for Valero Energy (VLO - Get Report) , the biggest independent player in the industry.
The narrowing spread between the price of Brent and West Texas Intermediary crude has also helped push Valero shares down, by 5.9% in the last two months.
Is it worth your investment if you have a long-term view? According to some analysts including Morgan Stanley, it is.
Bill Day, Valero's vice president for communications, said in an email to TheStreet the company will take advantage of an uptake in exports of condensates, an ultra-light crude oil, and is also well positioned to capitalize on the growing exports of other kinds of refined crude oils from the U.S.
Refinery stocks have had a hard time but some analysts, such as Citi, have been encouraged by their recent recovery.
At around $54, Valero Energy's shares have risen by 6% for the year to date, compared with the almost 8% gain for the S&P 500 for the same period. The company's shares are priced 9.5 times its earnings for the last 12 months. On the other hand, peers Marathon Petroleum (MPC) , HollyFrontier Corp (HFC) , Phillips 66 (PSX) , Tesoro Corp (TSO) , Western Refining (WNR) and CVR Energy (CVI) are all trading at more than 14.6 times their trailing 12-month earnings.
Valero is also one of the leading producers of ethanol, a renewable fuel. The company boasts of 16 refineries, representing a massive throughput capacity of 2.9 million barrels per day, and 10 ethanol plants that can produce up to 85,000 barrels of biofuel per day. The company gets more than 80% of its operating income from refining while the rest comes from the ethanol segment.
Earlier this year, the U.S. Commerce Department allowed Pioneer Natural Resources (PXD) and Enterprise Product Partners (EPD) to begin exporting condensates. The ruling could pave the way for lifting the 40-year old crude export ban. An increase in exports could narrow the gap between the price of American WTI and European Brent crudes, eliminating the price advantage which American refiners have enjoyed for several years.