Analyst ratings for refiners
MPC, VLO, ANDV, and PSX are covered by a total of 20, 22, 21, and 20 analysts, respectively. Of these analysts, 75.0%, 45.0%, 81.0%, and 35.0% gave MPC, VLO, ANDV, and PSX, respectively, “buy” ratings.
Downstream companies with high “buy” ratings
Andeavor (ANDV) and MPC have received high percentages of “buy” ratings from analysts. Andeavor is striding on its growth path with acquisitions, including the Western Refining (or WNR) acquisition and continuous logistics assets acquisition.
Andeavor is continuing its integration of WNR. The integration of Western Refining has generated $190.0 million of synergies on an annual run-rate basis in 2017.
ANDV expects around $350.0 million–$425.0 million of annual savings in the form of operational synergies by June 2019. Andeavor’s mean target price of $138.00 implies a 46.0% gain from the current stock price level, the highest among the peers discussed in this series.
Marathon Petroleum (MPC) has also received a high number of “buy” ratings, perhaps due to the reorganization of the company. MPC’s mean target price stands at $82.00 per share, implying a 23.0% gain from its current level.
MPC’s strategic overhaul is coming to an end. MPC had planned to drop down its midstream assets, which represent ~$1.4 billion of annual EBITDA[1. earnings before interest, tax, depreciation, and amortization] to MPLX.
Assets representing ~$250.0 million of EBITDA were dropped down in 1Q17, ~$135.0 million in 3Q17, and ~$1.0 billion in 1Q18. The last step of the IDR exchange is also being completed in 1Q18.
VLO’s rising “hold” ratings
Valero (VLO) has witnessed another rise in its “hold” ratings. Valero’s mean target price of $102.00 depicts 10.0% of the implied gain from the current level—the lowest compared to MPC, ANDV, and PSX.
Valero has a steady leverage position and a satisfactory cash flow situation. It also is a regular contributor to shareholders via dividends and buybacks. However, Valero faces a high, uncertain RINs (Renewable Identification Numbers) purchase burden. Its volatile RIN expense may have led analysts to rate VLO a “hold.”
PSX’s higher “hold” ratings
PSX also has a high number of “hold” ratings. About 55.0% of analysts have given PSX “hold” ratings.
Phillips 66’s development strategies across its business segments make its earnings model diversified and growth-oriented. Its inorganic and organic growth strategy in its Midstream, Chemicals, and Refining segments could enhance its earnings.
Phillips 66’s “hold” ratings from analysts could be due to its higher valuations that already accounted for its expected growth. PSX’s mean target price stands at $109.00, implying a 19.0% gain from the current level.