Marathon Petroleum Corporation (NYSE:MPC) shares are up more than 23.54% this year and recently increased 0.78% or $0.48 to settle at $62.20. Andeavor (NYSE:ANDV), on the other hand, is up 21.38% year to date as of 11/13/2017. It currently trades at $106.15 and has returned -4.86% during the past week.
Marathon Petroleum Corporation (NYSE:MPC) and Andeavor (NYSE:ANDV) are the two most active stocks in the Oil & Gas Refining & Marketing industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect MPC to grow earnings at a 18.00% annual rate over the next 5 years. Comparatively, ANDV is expected to grow at a 29.70% annual rate. All else equal, ANDV’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Marathon Petroleum Corporation (MPC) has an EBITDA margin of 7.82%. This suggests that MPC underlying business is more profitable MPC’s ROI is 7.30% while ANDV has a ROI of 8.50%. The interpretation is that ANDV’s business generates a higher return on investment than MPC’s.
If there’s one thing investors care more about than earnings, it’s cash flow. MPC’s free cash flow (“FCF”) per share for the trailing twelve months was +2.04. Comparatively, ANDV’s free cash flow per share was -0.16. On a percent-of-sales basis, MPC’s free cash flow was 1.57% while ANDV converted -0.1% of its revenues into cash flow. This means that, for a given level of sales, MPC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. MPC has a current ratio of 1.50 compared to 1.50 for ANDV. This means that MPC can more easily cover its most immediate liabilities over the next twelve months. MPC’s debt-to-equity ratio is 0.99 versus a D/E of 0.84 for ANDV. MPC is therefore the more solvent of the two companies, and has lower financial risk.
MPC trades at a forward P/E of 14.52, a P/B of 2.42, and a P/S of 0.43, compared to a forward P/E of 12.84, a P/B of 1.83, and a P/S of 0.54 for ANDV. MPC is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. MPC is currently priced at a -6.07% to its one-year price target of 66.22. Comparatively, ANDV is -11.33% relative to its price target of 119.72. This suggests that ANDV is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.80 for MPC and 2.00 for ANDV, which implies that analysts are more bullish on the outlook for ANDV.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. MPC has a beta of 1.60 and ANDV’s beta is 1.57. ANDV’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.MPC has a short ratio of 2.16 compared to a short interest of 2.81 for ANDV. This implies that the market is currently less bearish on the outlook for MPC.
Andeavor (NYSE:ANDV) beats Marathon Petroleum Corporation (NYSE:MPC) on a total of 7 of the 14 factors compared between the two stocks. ANDV is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, ANDV is the cheaper of the two stocks on an earnings and book value, ANDV is more undervalued relative to its price target. Finally, GPK has better sentiment signals based on short interest.