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Why Does Marathon Petroleum Have Mixed Valuations?

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

Marathon Petroleum’s valuations

Currently, Marathon Petroleum (MPC) trades at a forward PE ratio of 9.0x, which is below the peer average of 9.9x. Valero Energy (VLO), PBF Energy (PBF), and Phillips 66 (PSX) trade above the peer average. Valero Energy, PBF Energy, and Phillips 66 stocks trade at 10.6x, 10.8x, and 10.9x the forward PE ratio, respectively.

Moving to the EV-to-EBITDA multiple, Marathon Petroleum stock trades at a forward EV-to-EBITDA multiple of 6.4, which is above the peer average of 5.9x. HollyFrontier (HFC) and Delek US Holdings (DK) trade below the peer average. HollyFrontier and Delek US Holdings trade at EV-to-EBITDA multiples of 5.7x and 4.7x, respectively.

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Why the mixed valuations?

Marathon Petroleum stock shows a mixed trend. While the stock’s EV-to-EBITDA multiple is above the peer average, its forward PE ratio is below the average. The mixed valuations could be due to the company’s better earnings outlook. The valuations could be offset by Marathon Petroleum’s weaker financial position.

Marathon Petroleum’s earnings are expected to rise due to its integrated model and high capacities. The anticipated synergies from Andeavor’s acquisition are expected to increase the earnings. The company’s capex activities in refining and midstream segments could fuel the earnings growth. Analysts expect the company’s earnings to grow in the next few years. Marathon Petroleum’s EPS is expected to rise 2% in 2019 and 47% in 2020. The company’s EPS is better than most of its peers, which are expected to post a decline in their earnings in 2019.

However, Marathon Petroleum’s debt and liquidity position aren’t comfortable. The company’s refining earnings indicators have declined in the current quarter. These factors could have impacted Marathon Petroleum’s valuations.

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