Where Do MPC’s and ANDV’s Valuations Stand after Merger News?


Nov. 20 2020, Updated 4:31 p.m. ET

MPC’s valuation

Marathon Petroleum’s (MPC) valuations have slid due to a decline in its stock after the merger announcement. We discussed the stock’s fall in the previous part of the series. This fall led to a decline in MPC’s forward EV-to-EBITDA. Currently, MPC stands at 7.6x its forward EV-to-EBITDA, which is below the average of 7.8x. However, MPC is still trading at 14.8x its forward price-to-earnings, above the average PE of 13.8x.

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This merger is expected to be a remarkable milestone on MPC’s growth trajectory. Moreover, MPC has ongoing growth activities across segments. MPC estimates it could spend around $4 billion in 2018. The company plans to spend 60% of estimated capex in the midstream segment, 24% in the refining segment, and 13% in the Speedway segment in 2018. In accordance with MPC’s strategic plan, which was unveiled in January 2017, the company has now completed the dropdown of assets representing $1.4 billion of EBITDA to its MLP, MPLX (MPLX). For more on MPC, read Marathon Petroleum’s Capital Expenditure and Growth Trajectory.

ANDV’s valuation

The steep surge in Andeavor (ANDV) stock has led to a rise in its valuations. ANDV’s valuations, which stood below the peer average before the merger announcement, now are above following the announcement. ANDV trades at 14.5x its forward price-to-earnings and 8.8x its forward EV-to-EBITDA, both above the peer averages.

Earlier, ANDV traded at a discount perhaps due to its debt and cash flow position. In 1Q18, both ANDV’s debt-related ratios (net debt to EBITDA and total debt to total capital) stood higher than the industry average, which isn’t a comfortable situation. Also, the company witnessed a shortfall in terms of discretionary cash flow.

However, now with the expected merger, ANDV could see a sharp uptick in its growth matrix. Plus, ANDV had ongoing growth activities before the merger announcement, which could further support growth.

Peers’ valuation

Valero Energy (VLO) and Phillips 66 (PSX) trade above peer averages on both valuation matrices. VLO trades at 14.8x its PE and 8.0x its forward EV-to-EBITDA. Similarly, PSX trades at 15.6x its PE and 9.4x its forward EV-to-EBITDA.

However, Delek US Holdings (DK), HollyFrontier (HFC), and PBF Energy (PBF) have shown mixed trends. While DK and HFC trade above the average forward PE at 15.1x and 14.7x, respectively, PBF trades below average at 12.3x.


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