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Where Is Andeavor Headed in 4Q17?

PART:
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Part 12
Where Is Andeavor Headed in 4Q17? PART 12 OF 15

How Andeavor’s Valuations Compare to Its Peers

Andeavor’s valuations

In the previous part, we evaluated institutional ownership in Andeavor (ANDV). In this part, we will consider Andeavor’s forward valuation in comparison to its peers.

Andeavor (ANDV) is trading at a forward PE (price-to-earnings) ratio of 12.6x, below its peer average of 13.7x. However, ANDV trades at an EV-to-EBITDA1 multiple of 7.1x, above its peer average of 6.8x.

How Andeavor’s Valuations Compare to Its Peers

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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 14.4x and a forward EV-to-EBITDA multiple of 7.5x.

MPC trades above peer averages likely due to its strategic program to increase value for its shareholders by several measures, including dropping down midstream assets to its MLP.

PSX’s forward PE and forward EV-to-EBITDA multiples stand at 16.0x and 8.1x, respectively. PSX commands premium valuations above its peer averages due to its diversified business portfolio.

Valero Energy (VLO) and PBF Energy (PBF) trades below the peer average on both valuation ratios. VLO trades at a 13.6x forward PE multiple and a 6.5x forward EV-to-EBITDA multiple. This could be due to ongoing quarterly RINs (Renewable Identification Numbers) expenses.

Andeavor’s valuations

Andeavor (AMDV) has put up a mixed trend 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 3Q17 results led to a drop in its valuations.

Andeavor’s 3Q17 earnings have fallen short of market expectations. As the Western Refining (or WNR) integration advances and as ANDV attains its expected synergies, this condition could improve. The capex activities that ANDV is undertaking could also support its earnings growth.

Another factor hindering Andeavor stock could be declining refining index values in 4Q17. ANDV’s refining index values point toward a weaker refining environment, which could lead to lower margins for the company in 4Q17 over 3Q17.

However, as ANDV progresses with the Western Refining acquisition and growth activities, the company’s earnings could improve. This trend could lead to a rise in Andeavor’s stock price and valuations.

  1. enterprise value to earnings before interest, tax, depreciation, and amortization
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