uploads///Peer Comparison

Why Are MPC’s Forward Valuations Higher than the Peer Average?


Aug. 29 2016, Updated 9:04 a.m. ET

Peer comparison

In the earlier part, we discussed Marathon Petroleum’s (MPC) historical valuation trends. In this part, we will consider MPC’s forward valuations compared to its peers.

Before we proceed with peer comparison, let’s consider the market capitalization figures of American refiners. Marathon Petroleum’s market cap stands at ~$22 billion. Peers such as Valero (VLO) and Phillips 66 (PSX) have higher market caps standing at ~$24 billion and ~$40 billion, respectively. However, Tesoro’s (TSO) market cap of ~$9 billion is lower than MPC’s market cap.

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MPC’s forward valuations above peer average

MPC is currently trading at a forward PE (price-to-earnings) ratio of 12.3x, above its peer average of 11.7x. MPC’s peers Tesoro (TSO) and HollyFrontier (HFC) are also trading above the average.

Marathon Petroleum (MPC) is currently trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] ratio of 7.1x, above its peer average of 5.9x. Most of MPC’s peers are trading closer to the average forward EV-to-EBITDA ratio.

However, Phillips 66 (PSX) and Western Refining (WNR) are trading above the average at 7.8x and 6.8x forward EV-to-EBITDA, respectively. The PowerShares Dynamic Large Cap Value ETF (PWV) has ~4% exposure to energy sector stocks.

Why does MPC trade at valuations higher than the peer average?

MPC trades at valuations above its peer average, likely due to the fact that it is focusing on its integrated downstream model. Marathon Petroleum (MPC) aims to increase its income from its more stable Midstream and Marketing segments.

In addition to other financial metrics, the Market seems to be assigning higher valuations to stocks with diversified downstream business segments, stable income stream, and lower dependence on the volatile refining margin environment.


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