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Andeavor's 3Q17 Stock Performance Beat the S&P 500

PART:
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Part 10
Andeavor's 3Q17 Stock Performance Beat the S&P 500 PART 10 OF 14

Why Andeavor’s Valuations Are Higher than Historical Averages

Andeavor’s valuations

In this part of our series, we’ll evaluate Andeavor’s historical valuation trends. Let’s begin by looking at the price-to-earnings (or PE) multiple.

As the PE ratio considers both the market price and earnings per share, the ratio remains vulnerable to variations in both. Changes in equity markets impact stock prices. Also, a company’s revenues and costs, driven by several factors, impact earning per share.

Why Andeavor’s Valuations Are Higher than Historical Averages

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Andeavor’s average PE ratio stood at 10.5x between 2Q15 and 2Q17. The ratio had continuously fallen from 2Q15 to 2Q16. However, ANDV noted a reversal of the trend in 3Q16. In 4Q16, Andeavor announced its acquisition of Western Refining—which has, presumably, resulted in a steep rise in ANDV’s stock price and valuations, pushing its PE above its historical average to 15.7x in 2Q17.

Moving to EV-to-adjusted EBITDA1, we see that from 2Q15 to 2Q17, Andeavor’s EV-to-adjusted EBITDA ratio stood at an average of 5.9x. In 2Q17, Andeavor traded at an EV-to-EBITDA of 11.8x—higher than the historical average.

Currently, Andeavor trades at 13.4x EV-to-EBITDA. Comparatively, Valero Energy (VLO), HollyFrontier (HFC), and PBF Energy (PBF) currently stand at 7.8x, 12.0x, and 10.9x EV-to-EBITDA, respectively.

Why above historical averages?

Andeavor’s stock price has risen despite the volatile refining environment. This rise might indicate that investors have faith in the company and believe its growth activities will result in higher earnings. We can see that investors view Andeavor’s strategy (of acquisitions and expansions) as yielding favorable results. Plus, investors are now likely looking for synergies and benefits from the acquisition of Western Refining to kick in. Investors probably recognize Andeavor as a downstream company prepared to earn more profits with any improvement in the refining environment.

  1. Earnings before interest, tax, depreciation, and amortization
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