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How Analysts Rate Pre-Earnings for PSX, MPC, HFC, and VLO

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Analyst ratings for refiners

Let’s look at analysts’ rating for the refiners we’re covering in this series.

  • Of the 17 analysts covering HollyFrontier (HFC) stock, 22% have rated it a “buy.”
  • Of the 18 analysts tracking Phillips 66 (PSX), 44% are rating it a “buy.”
  • Of the 19 analysts covering Marathon Petroleum (MPC) stock, 88% have recommended a “buy.”
  • Of the 18 analysts covering Valero Energy (VLO) stock, 63% have rated it a “buy.”

In this part of the series, we’ll look at the details of Marathon Petroleum and Phillips 66. We’ll cover Valero and HollyFrontier in the next part.

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MPC ranks third in earnings growth but has the highest ‘buy’ ratings

Marathon Petroleum is growing with its capex and acquisitions, including the latest acquisition of Andeavor. Wall Street analysts expect its earnings to rise 38% in 2018 and 43% in 2019. It will thus benefit not only from merger synergies but also from its growth activities.

Although Marathon Petroleum’s debt position is not currently comfortable, it could improve soon. That’s because higher earnings could result in surplus cash, which could be used to repay debt. In the first half of the year, Marathon Petroleum had a cash flow surplus.

Its mean target price is $103 per share, implying a 19% gain from its current level, which is the highest among its peers.

Phillips 66 has mixed ratings

Phillips 66 has an integrated and diversified downstream earnings model. During the periods of lower refining earnings, other segments such as midstream, chemicals, and marketing continue to contribute to its overall earnings, shielding it from refining environment volatility. Phillips 66 plans to grow these segments through capex and acquisitions. It also has robust financials, a comfortable debt level, and a favorable liquidity position.

However, Phillips 66 trades at a premium to the peer average due to its diversified, growth-oriented earnings model and robust financials. That has likely led to mixed ratings. Its mean target price is $128 per share, implying an 8% gain from its current level.

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