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Marathon Petroleum Corp Bull Thesis

Valuewalk

I would choose Marathon Petroleum Corp (NYSE:MPC) as my number one stock pick because of its large refining and retail gas station presence in the United States. Its two-main brands, Arco and Speedway, allow the company to sell millions of gallons of gasoline products every day. The company has sixteen refining sites which make it the largest refinery in the country. Its Wilmington site alone brings in 363,000 barrels of crude oil each day to be processed. The company was hit hard last month as the covid-19 pandemic brought the economy to a halt.

Marathon Petroleum Corp Cuts Production

Events across the country were cancelled and many corporations told employers to begin working from home. This sudden change in the economy forced Marathon Petroleum Corp to cut production at many of its sites as demand plummeted. Like many other major oil companies around the world, Marathon saw its stock cut in half. I believe Marathon Petroleum Corp is the best company in the industry because they do not drill, which is usually tied to the price of crude oil. They also have very strong brand recognition, which includes marketing with the LA Dodgers, San Diego Padres, and Fox Sports in both Los Angeles and San Diego. Arco also has partnerships with Goodwill.

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Furthermore, their cheaper retail gasoline prices help separate them from their competitors Exxon Mobil, Chevron, Delek US holding INC, Holly Frontier Corp and Valerio Energy Corp. Arco can charge less per gallon than its competitors because they only allow customers to use cash and debit cards. Since credit cards are not permitted, they don’t have to pay a surcharge on gas per gallon, which in return lets them charge less for gas per gallon. The cheaper the cost of gas, the more affordable it becomes for the community, which directly correlates to attracting more customers and more sales.  According to Seeking Alpha, Total Revenue has increased every year from 2015 through today, going from $64,000 dollars to roughly $124,100 dollars (trailing twelve months).

Its Gross profit has also increased in that time period going from $8,210 dollars in 2015 to $13,869 dollars today (trailing twelve months). That’s almost double the money between those years. Their cash flow from operations has also gone up every year since 2015 starting from $4,073 dollars in 2015 to $9,441 dollars today (trailing twelve months). It has also doubled in price in the last four years. The stock is currently yielding 7.3% which allows you to get paid while you wait for the stock to recover.

Paul Singer's Stake In The Stock

Many large hedge funds like Elliot Management ran by the legendary Paul Singer also have stakes in the company which i think will bolster investor confidence in the coming year. Elliot is proposing the company break up its businesses into different segments including the selling of the Speedway brand unlocking further shareholder value.

Earlier in the year, prior to the economic downturn, the company was in negotiations with the 7-11 convenience store chain to sell its Speedway portion of the business for 22 billion dollars. I believe if this deal goes through it will give the company ample capital to focus on other segments of its business. I also believe, the stock will go back to all-time high in 2021, once the COVID-19 pandemic is resolved and the country is finally able to recover. The entertainment and fine dining establishments will begin to re-open and people will hit the roads again. Another reason why I think the stock will rise is because day by day more of the Arco gas stations are allowing credit card purchases to be made, which will drive in more customers.

As of April 30th, Marathon Petroleum Corp was trading at $31.72 per share. It has already gone up $16 a share since March 16th, when prices dropped due to COVID 19. I believe this stock can hit $50 by the year 2021 and I think by the year 2022-2023 this stock should have no problem going back to selling for at least $85 a share like it did in March of 2018. It may even hit $100 a share because of the reasons I explained before. Future advances may also play a big factor in the growth of the price of the stock per share. Once this pandemic ends more people are going to have to start driving to their normal daily activities, which means more people are going to need gas and Arco is a great option due to their competitive pricing. There shouldn’t be any reason for them to get back to their peak, and maybe even break through it.

Work cited:

“Marathon Petroleum Corp (MPC) Stock Analysis & News.” Seeking Alpha, seekingalpha.com/symbol/MPC?s=mpc.

“Market Summary – US Stock Market Overview.” MarketWatch, www.marketwatch.com/tools/marketsummary.

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