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) 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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