Investors who buy into Valero Energy (VLO) at this pivotal time will own stock in a company that produces not only stunning earnings growth but will also pocket a big bonus. They get shares in a new company that the leading oil refiner will soon spin off. The spinoff is one of the largest retailers of motor fuel in the U.S. and Canada.

Not surprisingly, shares of Valero have been on fire, bolting from $19 a share in mid-2012 to $43 on Jan. 30, 2013, precisely because of the company's expanding profit margins and the much-awaited spinoff.

As a result, most Street analysts have boosted both their earnings forecasts and stock price targets. Several have jacked up their price goals sharply higher, to between $53 and $70 -- yes, $70 -- from $42 and $43.77, respectively.

"Valero's increased access to advantaged domestic crudes combined with management's commitment to returning cash to shareholders (as evidenced by its 14% regular quarterly dividend raise to $0.20 a share from $0.175 in the first quarter of 2013) could lead to a revaluation of the shares," says Paul Y. Cheng, analyst at Barclays Capital.

Rating the stock as "overweight," he has boosted his price target to $70 from $43.77, convinced that Valero will "benefit from the growing U.S. refiner cost and crude input advantage, which will support refiner cash flow sustainability, and allow U.S. based refiners to capture additional share of the export market."

Cheng also believes that Valero is best positioned to capture the expected discounting of Gulf Coast crudes compared to global benchmarks. The company owns and operates 16 refineries located in the U.S., Canada, the United Kingdom, and Aruba. They produce gasoline, distillates, jet fuel, asphalt, petrochemicals and lubricants. The refineries accounted for 82% of operating income in 2011.

The retail business that Valero is spinning off, with 998 company-operated sites in the U.S. and 463 retail stores in Canada, accounted for 9% of operating income last year.

Spin-Off Research in Chicago estimates the value of the retailing unit at $1.7 billion. The company is being named CST Brands when it goes public on the Big Board in the second quarter of 2013. Valero will distribute 80% of the shares to its shareholders and retain 20%, Valero plans to liquidate or sell within 18 months from the time of the spinoff.

Valero's performance during 2012's fourth quarter were way beyond expectations, beating Wall Street's forecasts hands down. The quarter's reported earnings of $1 billion, or $1.88 a share, were 59% above the consensus analysts' predictions, and compares with a loss of 21 cents a share in the fourth quarter of 2011.

The big numbers reflect the continued strong industry fundamentals, including "wide crude discounts, cheap natural gas, declining regulatory spending, and growing refined product exports," says Fadel Gheit, the oil guru at Oppenheimer. He rates the stock as "outperform," and raised his 12 to 18-month price target to $55 a share from $43.

The improvement in industry conditions, says Gheit, will boost earnings, cash flow and the stock's valuation. That alone makes Valero an outstanding buying opportunity in energy. The spinoff of the retail business is pure gravy.

Meet MSN Money at the World MoneyShow
Is it time to give your portfolio its annual checkup? Then join thousands of investors like yourself at the World MoneyShow Orlando, which runs from Jan. 30 to Feb. 2 at the Gaylord Palms Resort in Orlando, Fla. At the world's largest investor and trader gathering, you have chances to hear from Top Stocks writers Jim Jubak, Anthony Mirhaydari and Gene Marcial, and Managing Editor Amey Stone, and dozens of other top investment experts. Registration is free for MSN Money users; sign up on the World MoneyShow website.


Gene Marcial wrote the column "Inside Wall Street" for Business Week for 28 years and now writes for MSN Money's Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.