Marathon Petroleum’s Valuations Were Mixed



Marathon Petroleum’s valuations

Currently, Marathon Petroleum (MPC) trades at a forward PE ratio of 12.6x—above its peer average of 11.9x. Marathon Petroleum’s peers also trade above the peer average except for Delek US Holdings (DK) and HollyFrontier (HFC). Delek US Holdings and HollyFrontier trade below the average forward PE ratio at 7.5x and 11.5x, respectively.

Marathon Petroleum (MPC) trades at a forward EV-to-EBITDA of 7.0—below its peer average of 7.2x. Andeavor (ANDV), Valero Energy (VLO), and Phillips 66 (PSX) trade above both of the peer averages.

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A mixed signal

Marathon Petroleum traded at the premium over the peer average before April 30—the day that the company announced its acquisition of Andeavor and its first-quarter earnings. However, the valuations swapped to a discount after April 30. Marathon Petroleum’s forward PE ratio has risen above the peer average due to the recent rise in the stock price.

Marathon Petroleum is growing due to its capex plans and the ongoing acquisition of Andeavor. The growth is expected to result in a spike in the company’s earnings. Wall Street analysts expect the company to grow 33% in 2018 and 40% in 2019. Marathon Petroleum will likely benefit from merger synergies and from individual companies’ growth activities.

Although Marathon Petroleum’s debt position isn’t comfortable, it could improve in the near future. Higher earnings could result in surplus cash, which could be used to repay debt. In the first half of 2018, Marathon Petroleum had a cash flow surplus.

Overall, Marathon Petroleum could witness a rise in its valuations as the acquisition progresses and markets start recognizing the massive growth in the merged entity’s capacities, earnings, and cash flows.


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