Marathon Petroleum’s Valuation and the Peer Average

Maitali Ramkumar - Author

Aug. 18 2020, Updated 6:34 a.m. ET

Marathon Petroleum’s valuations compared to its peers

In the previous part, we saw the changes in institutional ownership in Marathon Petroleum (MPC). We also looked at its major buyers and sellers in the past six months. Now let’s look at Marathon Petroleum’s forward valuation compared to its peers.

Currently, MPC trades at a forward PE (price-to-earnings) ratio of 16.0x compared to the peer average of 15.9x. PBF Energy (PBF), HollyFrontier (HFC), and Phillips 66 (PSX) also trade above the average at 16.5x, 17.9x, and 16.3x, respectively.

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Moving to EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratios, Marathon Petroleum trades at a forward EV-to-EBITDA ratio of 7.8x, which is above the peer average of 7.6x. Most of MPC’s peers trade above the average except for Valero Energy (VLO) and PBF (PBF). VLO’s EV-to-EBITDA ratio is 6.1x.

Andeavor (ANDV) and Phillips 66 (PSX) trade above the average at 7.8x and 8.8x, respectively. Valero (VLO) has a satisfactory leverage and cash flow position but is bearing the burden of high compliance costs. The purchase of RINs (renewable identification numbers) quarter-over-quarter is denting the company’s refining earnings.

Andeavor has a mixed trend in terms of valuations. A few months ago, it traded at a premium to both peer averages, presumably due to the Western Refining acquisition. However, the fall in its stock after its 2Q17 results led to a fall in its valuations. Looking at Phillips 66 (PSX), it has a diversified earnings model aimed at shielding itself from the refining environment volatility. The company is focused on increasing its steady midstream and marketing segment earnings.

Why does Marathon Petroleum’s valuation command a premium?

MPC trades at valuations above its peer averages, most likely because it is now in the process of restructuring the organization to unlock value. It’s focused on increasing shareholder value by growing its midstream segment. The company plans to drop down midstream assets to MPLX (MPLX), its MLP. It also intends to separate its marketing (or Speedway) segment. Perhaps the markets are assigning higher valuations to MPC due to the potential value appreciation as a result of the execution of MPC’s strategic plan.

In the next part, we’ll look at Marathon Petroleum’s leverage position.


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