Do Marathon Petroleum’s Valuations Stand above Peer Averages?


Dec. 4 2020, Updated 10:52 a.m. ET

Marathon Petroleum’s valuations compared to 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, we’ll look at Marathon Petroleum’s forward valuation compared to its peers.

Currently, MPC trades at a forward PE (price-to-earnings) ratio of 14.8x, above its peer average of 13.8x. MPC’s peers HollyFrontier (HFC) and Phillips 66 (PSX) also trade above the average at 16.7x and 15.9x, respectively.

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Marathon Petroleum (MPC) trades at the forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 7.6x, above its peer average of 7.1x. Most of MPC’s peers trade above the average forward EV-to-EBITDA multiple except Valero Energy (VLO), PBF Energy (PBF), and CVR Refining (CVRR).

VLO trades below average at an EV-to-EBITDA multiple of 6.7x, but Andeavor (ANDV) and Phillips 66 (PSX) trade above average at 7.4x and 9.1x, respectively. Valero (VLO) has a satisfactory leverage and cash flow position, but it 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 put up 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 decline in its stock price after its 3Q17 results has led to a drop in ANDV’s valuations.

Phillips 66 (PSX) has a diversified earnings model aimed at shielding itself from the refining environment’s volatility. Plus, the company focuses on increasing its steady Midstream and Marketing segments’ earnings.

Why does Marathon Petroleum command premium valuations?

MPC trades at valuations above its peer averages likely because it is in the process of restructuring the organization to unlock value. Marathon Petroleum (MPC) focuses on increasing shareholders’ value by growing its Midstream segment.

The company is in the process of dropping down midstream assets to MPLX LP (MPLX), its master limited partnership. Please refer to Part 4 of this series for further details on its reorganization.

Perhaps markets are assigning higher valuations to MPC by considering the potential value appreciation as a result of the execution of MPC’s strategic plan.

Move on to the next part to learn about Marathon Petroleum’s leverage position.


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