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What Andeavor’s PEG Ratio Indicates

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Dec. 13 2017, Updated 7:30 a.m. ET

Andeavor’s PEG ratio

The PEG (price-to-earnings-to-growth) ratio examines a stock’s valuation after factoring in its expected growth rate. We have taken into consideration Andeavor’s (ANDV) mean estimate of PEG. A PEG ratio that is less than 1.0 signifies an undervalued stock.

Andeavor’s PEG ratio stands at 0.41, above the peer average of 0.36. The peer average considers the average PEG ratio of eight American downstream companies.

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Andeavor’s growth activities

Andeavor (ANDV) is progressing with its growth activities in its Refining, Logistics, and Marketing segments. In Refining, Andeavor has begun construction for its Los Angeles Refinery Integration and Compliance Project. This project is expected to deliver $125.0 million of annual EBITDA[1. earnings before interest, tax, depreciation, and amortization] with expenses of ~$510.0 million, and it is expected to start in 2019.

Andeavor’s Isomerization project at its Anacortes refinery is expected to cost $170.0 million and is anticipated to deliver $40.0 million of annual EBITDA. The project is foreseen to be operational by 2Q18.

In its Logistics segment, Andeavor reached an agreement for terminaling and transportation services with Petróleos Mexicanos in Mexico. This agreement would let the company supply 30,000–40,000 barrels per day of transport fuels in Mexico.

Andeavor recently announced its plan to progress with the Conan Crude Oil Gathering Pipeline system. The project would be operational by mid-2018 with a total investment of $225 million.

In its Marketing segment, Andeavor acquired 39 stores, growing its retail network in Northern California.

PEG ratios of peers

Marathon Petroleum (MPC), Valero Energy (VLO), and Phillips 66 (PSX) have above-average PEG ratios. MPC, VLO, and PSX are trading at PEG ratios of 0.44, 0.60, and 0.71, respectively. Generally, the higher the PEG ratio stands, the more expensive the stock is after considering future growth.

Delek US Holdings (DK) trades in line with the peer average at a 0.36 PEG ratio. HollyFrontier (HFC), PBF Energy (PBF), and CVR Refining (CVRR) trade below the peer average at 0.10, 0.19, and 0.04, respectively.

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