Energy has been in short supply for most of the year due to supply-side constraints caused by the conflict between Russia and Ukraine and OPEC+’s decision to cut oil production by 2 million barrels/day.

Moreover, with the EU embargo on Russian crude oil expected to kick in from December onward, more supply threatens to be taken off the market as Russia’s oil production is projected to fall to as low as 9 million barrels per day (BPD).

The potential supply vacuum and consequent higher prices bode well for oil and gas companies, such as Marathon Petroleum Corporation (MPC - Get Rating). It is involved in midstream and downstream businesses, such as petroleum product refining, marketing, and retail in the United States. The company operates through two segments: Refining & Marketing and Midstream transport.

MPC’s stock is currently trading above its 50-day and 200-day moving averages of $107.39 and $93.74, respectively, indicating a bullish trend. The stock has gained 13.1% over the past month and 83.4% year-to-date to close the last trading session at $120.40.

Let’s closely examine the factors that make it worthy of investment.

Robust Financials

For the fiscal 2022 third quarter ended September 30, MPC’s total revenues and other income increased 44.8% year-over-year to $47.24 billion, while its adjusted EBITDA increased 182.9% year-over-year to $6.83 billion due to improving operational and commercial execution as the refining system ran at near full utilization to meet demand.

As a result, adjusted net income attributable to MPC rose 731.3% from the prior-year quarter to $3.86 billion. The company’s adjusted EPS came in at $7.81, up 969.9% year-over-year.

Favorable Analyst Estimates

Analysts expect MPC’s revenue and EPS of the fiscal year ending December 2022 to increase 47.4% and 963.2% year-over-year to $178.24 billion and $26.05, respectively. The company has also impressed by topping the consensus estimates in each of the trailing four quarters.

Excellent Asset Utilization by Management

MPC’s trailing-12-month return on common equity of 43.83% is 83.6% higher than the industry average of 20.68%. The company’s trailing 12-month return on total capital of 16.61% compares favorably with the industry average of 8.28%, while its trailing 12-month return on total assets of 13.34% also beats the industry average of 6.88%.

Attractive Valuation

In terms of forward non-GAAP P/E, MPC is currently trading at 4.61x, 42.1% lower than the industry average of 7.97x. The stock’s forward EV/Sales multiple of 0.45 is 78.4% lower than the industry average of 2.04. Also, its forward Price/Sales multiple of 0.31 compares to the industry average of 1.49.

POWR Ratings Reflect Stellar Prospects

MPC’s overall A rating translates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MPC has grade A for Quality and Momentum, consistent with its efficient asset utilization and impressive price action, respectively.

In addition, the stock has a B grade for Growth, in sync with its robust financials and favorable analyst estimates. Also, its lower-than-industry valuation multiples have earned it a B grade for Value.

Unsurprisingly, MPC tops the list of 94 stocks in the B-rated Energy – Oil & Gas industry.

Click here to see additional POWR Ratings for Sentiment and Stability for MPC.

Bottom Line

Over the past three years, MPC’s revenue has grown at 14.5% CAGR, while its EBITDA has grown at 31.5% CAGR. The company’s net income also increased at 56.1% CAGR during the same period. Moreover, with multiple tailwinds acting in line to keep demand strong, the company’s improving operational and commercial execution keeps it in good stead for the upcoming quarters.

In addition to its bright oil and gas prospects, MPC’s joint venture with Neste (NTOIY) for the Martinez renewables project reflects its commitment to providing low carbon-intensity feedstocks. It is also expected to create a platform for additional collaboration within renewables.

Given MPC’s solid financials, discounted valuation, high profitability, and promising growth prospects, it could be wise to invest in this energy stock now.

How Does Marathon Petroleum Corporation (MPC) Stack up Against Its Peers?

MPC has been rated A, equating to a Strong Buy. Check out these other stocks within the Energy- Oil & Gas industry with an A (Strong Buy) rating: PBF Energy Inc (PBF - Get Rating), Valero Energy Corp. (VLO - Get Rating), and Adams Resources & Energy, Inc (AE - Get Rating).

MPC shares were trading at $120.99 per share on Friday afternoon, up $0.59 (+0.49%). Year-to-date, MPC has gained 94.00%, versus a -15.79% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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