Must-know: Comparing Valero to its peers

Market Realist

Must-know: An overview of Valero's 2Q14 earnings (Part 6 of 6)

(Continued from Part 5)

Comparing Valero to its peers

Valero’s (VLO) peers include HollyFrontier Corp. (HFC), Marathon Petroleum (MPC), and Phillips 66 (PSX). PSX is the largest company in the group by market capitalization and enterprise value (or EV). Market cap for PSX is $45 billion and EV is $47 billion.

VLO and MPC have similar EVs—roughly the summation of a company’s equity and net debt—ranging between $25 and $29 billion. However, VLO has the lower EV to earnings before interest, taxes, depreciation, and amortization (or EBITDA) multiple of 4.6x. This means that VLO has had a higher EBITDA compared to MPC. It’s important to note that VLO’s EV is higher at ~30 billion compared to MPC’s ~$26 billion.

Higher EBITDA for VLO is likely because of its massive throughput capacity of three million barrels per day (or bpd) compared to MPC’s throughput capacity of ~2 million bpd. In fact VLO has the highest throughput capacity in the group, higher than PSX’s two million bpd and HFC’s 414,000 bpd.

The forward EV to EBITDA multiple for VLO and MPC is lower compared to HFC and PSX. This is a positive because lower multiples indicate expectations of strong EBITDA growth.

However, it should be noted that VLO has the lowest price to earnings (or P/E) in the group. This reflects investor sentiment that earnings growth for VLO may be less compared to its peers. VLO’s forward P/E—based on Wall Street analyst consensus estimates for earnings per share (or EPS) in the following year—is shown to be increasing, which means that EPS is estimated to drop. This isn’t a good sign. Potentially, it explains the reason for VLO’s weak current P/E.

Key exchange-traded funds (or ETFs)

VLO, PSX, HFC, and MPC are all components of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

 

 

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