Valero's revenues have been surging lately. As you can imagine, just selling the same amount of energy product while the price soars nearly 100% will give you a revenue boost of 100%. But VLO has been unfortunately not making as much of a profit per barrel of oil as they did in 2007. The 2008 annual earnings estimates for VLO are averaging about $5.23 per share right now for the full year ending in December 2008, versus a 2007 full year figure of $8.17 per share. Try to get your head around the fact that VLO's revenues have surged over 42% in that time, and you'll fully understand the seriousness of the compression of the crack spread. VLO's operating environment in higher oil price conditions is just plain brutal. 2009's earnings estimates are currently posted at $6.03 per share, though revenues are expected to grow another 10%.
Given VLO's current valuation and earnings expectations, the market has basically denied them any potential benefit of either a respite from rising oil prices (which could happen) or a cessation in the compression of the crack spread. The second potential factor would immediately follow the first. The present value of VLO, given its earnings and revenues outlook under what is today arguably a "worst case" scenario has much downside risk to it. Quite the opposite - the price today represents a great value and high upside.