A vital evaluation of Tesoro’s equity ratios



Equity-related ratios

Continuing with our analysis of Tesoro Corporation’s (TSO) valuation metrics, we’ll have a look at the company’s equity-related ratios in this part.

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Price point selection

As we saw in the previous part, price point selection can affect return and valuation analyses substantially. But from the table above, we can safely draw the conclusion that Tesoro’s stock has done quite well, particularly if we look at it from the lows of the financial crisis.

Tesoro’s stock trades at lower PE multiples

In earlier parts, we saw how volatile Tesoro’s fortunes have been. Its earnings have been quite unstable over the years, as we can see in the article covering its earnings. This means that Tesoro’s price-to-earnings (or PE) ratio has also seen some volatility over the years.

But we can still clearly see an upturn in Tesoro’s fortunes in the last three quarters. Its stock traded at lower PE multiples even as it went up.

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Tesoro’s price-to-book (or PB) ratio has also seen its share of volatility. The company actually traded at less than its intrinsic or net asset value (assets less liabilities) for several years following the financial crisis. But again, it’s quite evident that the market clearly gave the company a thumbs-up lately.

The trend in valuations following Tesoro’s profitability is also seen in its price-to-cash flow metric. The ratio has fallen even as the stock has gone up. This is on account of its strong cash flows, as we saw in the earlier parts of this series.

Key ETF and peers

Tesoro is an independent refiner. The sector has reaped immense benefits from the situation in the global energy markets over the last few years.

The company is the top holding of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) with a 2.21% weighting as of December 17, 2014. The ETF also currently has many independent refiners among its top holdings. These include PBF Energy (PBF) at 1.98%, Valero Energy (VLO) at 1.8%, and Marathon Petroleum (MPC) at 1.78% of the fund as of this date.


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