Comparing Andeavor’s Valuation to Peers
In the previous part of this series, we evaluated institutional ownership in Andeavor (ANDV). In this part, we’ll consider Andeavor’s forward valuation compared to peers.
Andeavor (ANDV) is now trading at a forward PE (price-to-earnings ratio) of 15.4x—below its peer average of 16.5x. However, regarding forward EV-to-EBITDA, ANDV trades at 7.8x above its peer average of 7.4x.
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ANDV’s peers Marathon Petroleum (MPC), Phillips 66 (PSX), and HollyFrontier (HFC) also trade above peer averages. MPC trades at a forward PE of 16.6x and a forward EV-to-EBITDA of 8.2x. MPC trades above peer averages—likely due to its strategic program to increase value for shareholders through different measures, like dropping down midstream assets to its MLP. Similarly, forward PE and forward EV-to-EBITDA of PSX stands at 17.2x and 9.2x, respectively. PSX rules premium valuations over its peer averages, likely due to its diversified business portfolio.
But Valero Energy (VLO) and PBF Energy (PBF) trade below the peer average for both valuation ratios. VLO trades at 14.9x forward PE and 6.7x forward EV-to-EBITDA, which could be due to ongoing quarterly RIN (renewable identification number) expenses.
Andeavor’s valuations: Will they improve?
Andeavor recorded mixed trends in terms of valuations. A few months ago, it traded at a premium to both peer averages. However, the decline in its stock price after its Q2 results led to a drop in ANDV’s valuations.
The market was apparently anticipating better refining earnings in the second quarter. But the 91% fall in Andeavor’s refining operating income in 2Q17 presumably took a toll on Andeavor’s stock. But as the Western Refining (or WNR) integration advances and ANDV attains its expected synergies, conditions might improve. Andeavor expects annual synergies of around $350 million–$425 million from the integration of WNR. Also, ANDV’s capex activities, which we’ll discuss in the next part of this series, could further support earnings growth. Overall, ANDV expects operational improvements of $475 million–$575 million in 2017.
Also, ANDV’s refining index is pointing toward a better refining environment, which could lead to higher margins for the company in 3Q17. Plus, ANDV’s upcoming 3Q17 results should showcase the company’s full-quarter operations after the WNR acquisition. Presumably, this performance should lead to better earnings and result in a rise in Andeavor’s stock price and valuations in the near future.