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Tesoro Stock on the Move in 2Q17: What's Driving It?

PART:
1 2 3 4 5 6 7 8 9 10 11
Part 8
Tesoro Stock on the Move in 2Q17: What's Driving It? PART 8 OF 11

How Does Tesoro’s PEG Ratio Compare to Its Peers?

Tesoro’s PEG ratio

Previously in this series, we looked at Tesoro’s (TSO) rising valuations, which reflected a switch from a discount to a premium over its peer averages. In this part, we will look at valuations that consider the expected growth rate of the firm. We will look at Tesoro’s PEG (price-to-earnings to growth) ratio in comparison to its peers.

The PEG ratio examines a stock’s valuation after factoring in expected future growth rate. We have taken into consideration Tesoro’s (TSO) mean estimate of PEG. The mean estimate is calculated by considering mean price-to-earnings and mean blended growth rate. The PEG ratio that is less than 1 typically signifies an undervalued stock.

How Does Tesoro’s PEG Ratio Compare to Its Peers?

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Tesoro’s PEG ratio stands at 0.69, above the peer average of 0.42. The peer average considers the average PEG of seven American downstream companies.

Tesoro has the highest PEG ratio in the refining industry. This is quite a reversal from the company’s recent past, where Tesoro was trading at a discount to the peer average. The rise in Tesoro stock price has led to an increase in its valuations, pushing its PEG ratio above the peer average. For more on the recent rise in Tesoro stock, please refer to the first part of this series.

Peers’ PEG ratios

Marathon Petroleum (MPC) and Phillips 66 (PSX) are trading at PEG ratios of 0.61 and 0.60, respectively. Valero Energy (VLO) has a PEG ratio of 0.56, which is below MPC and PSX. The higher the PEG ratio, the more expensive the stock can be, after considering future growth.

Among the smaller players, HollyFrontier (HFC), PBF Energy (PBF), and CVR Refining (CVRR) trade below the peer average at 0.22, 0.21, and 0.03, respectively.

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