Shares of Valero Energy Corporation (NYSE:VLO) have surged more than 140% since the start of 2026. The article says the rally has been driven by an unusually sharp increase in global refining margins, as ongoing disruptions have reduced refining capacity and tightened supplies of gasoline, diesel, and jet fuel.
Even though some investors worry the stock may have already peaked, Wall Street still sees room for gains. On September 14, Morgan Stanley analyst Joe Laetsch raised the firm’s price target on Valero from $255 to $411 while keeping an “Equal Weight” rating. The new target implies nearly 4% upside from current levels and is above the stock’s previous all-time high of just under $400 a share.
What supports the bullish case
Morgan Stanley’s more optimistic view rests on the idea that Valero can convert the favorable refining backdrop into strong earnings and cash flow. The company already showed that in the second quarter, when it posted its highest-ever Q2 profit and beat Wall Street expectations.
The piece argues that the high-margin environment may persist after a fresh wave of attacks between the US and Iran. Even if the attacks stop and a potential peace deal is reached, damaged or idled refineries in the Middle East are likely to need time before returning to full operations. That could keep refined-fuel markets relatively tight. Supply disruption is not limited to the region, the article adds, as recent Ukrainian strikes on Russian refineries have also further constrained global refining capacity.
Another supportive factor is Valero’s FCC Unit optimization project at its St. Charles Refinery. The $230 million initiative, expected to be completed in the third quarter, is intended to improve the plant’s ability to produce higher-value products.
Shareholder returns are also part of the appeal. In the second quarter, Valero returned $2.6 billion to shareholders, up sharply from $695 million in the same period last year. According to TD Cowen’s Jason Gabelman, the company is expected to repurchase about 20% of its market value between Q3 and the end of next year, potentially boosting earnings per share.
Risks remain
The main concern is that Valero’s unusually strong Q2 profit was produced under extraordinary market conditions, and much of that upside may already be reflected in the stock’s valuation. Even a modest decline in global refining margins could trigger a sharp pullback in the share price.
In addition, Valero’s aggressive capital return strategy may become harder to sustain if crack spreads normalize. After a historic rally and record Q2 earnings, the article suggests the stock has limited room for disappointment.
Market positioning
According to Insider Monkey, Valero Energy Corporation (NYSE:VLO) was held by 81 hedge funds at the end of Q2 2026, with a combined investment value of $2.85 billion. That was up from 67 hedge fund holders with a total stake value of $2.43 billion in the previous quarter.
Overall, Morgan Stanley’s target increase signals confidence that tight refining markets can continue to support elevated earnings at Valero. At the same time, investors are weighing the risk that any easing in the current exceptional margin environment could quickly change the stock’s outlook.
