On Tuesday, Piper Sandler adjusted its price target on Marathon Petroleum (NYSE:NYSE:MPC) shares, a leading refining company. The new price target is set at $190.00, reduced from the previous $190.00, while the firm maintains a Neutral rating on the stock.
The adjustment follows observed changes in the market, particularly the narrowing of Western Canadian Select (WCS) differentials by approximately $1.37 or 10%, to $12.21 since the beginning of the second quarter.
This trend is attributed to the commencement of new Trans Mountain Expansion (TMX (TSX:X)) pipeline capacity. The narrowing WCS differentials are expected to negatively affect the second-quarter capture rates for refineries on the West Coast and in the Mid-Continent region that process WCS crude, including those operated by Marathon Petroleum.
Piper Sandler's price target is based on a sum-of-the-parts (SOTP) valuation approach for the fiscal years 2024 and 2025. The firm applies a blended forward-year enterprise value to EBITDA (EV/EBITDA) multiple of 5.5x for Marathon Petroleum's refining operations and a 5.8x blended multiple for corporate overhead.
Additionally, the valuation of Marathon Petroleum's holdings in the master limited partnership (MLP) is at current market prices, adjusted for non-recourse net debt. The refining and marketing (R&M) segment of the company is valued using a 9x multiple on its projected 2024 EBITDA.
The analyst's comments suggest that the startup of the new TMX capacity is a key factor influencing the pricing dynamics for refiners utilizing WCS crude. The narrowing of WCS differentials is a crucial element impacting the profitability and cost structure for these companies, including Marathon Petroleum, in the near term.
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