How Are MPC’s Forward Valuations Compared to Its Peers’?



Peer comparison

Earlier, we discussed Marathon Petroleum’s (MPC) historical valuation trends. In this part, we’ll consider MPC’s forward valuations compared to those of its peers.

Before we proceed with peer comparison, let’s consider the market capitalizations of American refiners. MPC’s market capitalization stands at $25 billion. Peers Valero (VLO) and Phillips 66 (PSX) have higher market capitalizations of $32 billion and $43 billion, respectively. Tesoro’s (TSO) market capitalization is $12 billion.

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MPC’s forward valuations below peer average

MPC is currently trading at a forward PE (price-to-earnings) ratio of 8.5, below its peer average of 9.6. Peers Tesoro and Valero are also trading below the average. A low oil price outlook is pushing up expected earnings for refiners, lowering their forward PE ratios.

According to the EIA (U.S. Energy Information Administration), going forward, oil prices are expected to remain subdued. The current drop in oil prices further affirms this expectation. Both crude oil benchmarks, Brent and WTI (West Texas Intermediate), have dropped below $40 per barrel, registering new seven-year lows.

Lower oil prices coupled with higher demand for refined products is likely to cause EBITDA (earnings before interest, tax, depreciation, and amortization) levels to surge for refiners. Rising EBITDA will result in lower EV-to-EBITDA (enterprise value to EBITDA) ratios.

Marathon Petroleum is currently trading at a forward EV-to-EBITDA of 4.9, below its peer average of 5.5. Most of the company’s peers are trading closer to the average, but Phillips 66 (PSX) is trading above the average, at 6.7 forward EV-to-EBITDA.

You may wish to consider the Energy Select Sector SPDR ETF (XLE), which holds MPC, VLO, TSO, and PSX in its portfolio.


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