We have maintained our Outperform recommendation on Findlay, Ohio-based independent oil refiner and marketer Marathon Petroleum Corporation (MPC).
The company, in its current form, came into existence following the 2011 spin-off of Houston, Texas-based Marathon Oil Corporation’s (MRO) refining/sales business into a separate, independent and publicly traded entity. Marathon Petroleum operates in three segments: Refining and Marketing, Speedway (Retail) and Pipeline Transportation.
It is the fifth largest domestic refiner with a combined crude oil processing capacity of approximately 1,193,000 barrels per day through its portfolio of six refineries. A major advantage for the company is its proprietary access to pipelines, which inhibits lower-cost competitors from supplying Marathon Petroleum's key markets.
Our bullish investment theme stems from Marathon Petroleum’s scale advantage, impressive asset quality, and an extensive midstream/retail network that diversifies its portfolio and provides more stable revenue streams.
The company’s financial flexibility and strong balance sheet are also real assets in this highly uncertain economic period. Marathon Petroleum remains in excellent financial health, with nearly $2 billion in cash/cash equivalents and an investment-grade credit rating with a debt-to-capitalization ratio of 24%. Furthermore, an attractive dividend yield and the $2 billion share buyback program – that commenced recently – highlight the company’s commitment to create value for shareholders.
Marathon Petroleum is almost through with its $2.2 billion Detroit Heavy Oil Upgrading Project. Ongoing since 2008, the initiative – on budget and on schedule – is expected to finish later this year. The completion of the project will not only deliver an extra 80,000 barrels a day of heavy oil processing capacity but also free up capital expenditures and boost the company’s free cash flow.
Marathon Petroleum is looking at strategic alternatives for some of its pipeline assets, including the possible formation of a master limited partnership by way of an initial public offering. We believe this potential spin-off could further enhance the company’s shareholder worth and valuation.
These factors, coupled with the relatively inexpensive valuation, make Marathon Petroleum an attractive investment.
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