Almost a year has passed since the conflict between Russia and Ukraine started polarizing a global economy that was still recovering from the setback of a pandemic and redrawing the global energy map. With hostilities set to intensity in the spring with both sides replenishing their supplies and rearming themselves, a peaceful resolution seems unlikely.
Although crude oil prices are down from their mid-2022 highs due to concerns regarding global economic growth, an earlier-than-expected return to growth for Europe aided by an expedited reopening of the Chinese economy is expected to keep demand stable and inching upwards.
Moreover, supplies are likely to remain constrained as price-cap hit Russian crude production gets absorbed by growing economies such as India and China, and OPEC+ follows up on its decision to cut oil production. Such stressors are set to increase Europe’s reliance on U.S. energy exports.
The potential supply vacuum and consequent higher prices bode well for oil and gas companies, such as Marathon Petroleum Corporation (MPC). 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.
Let’s closely examine the factors that make it worthy of investment.
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.
Excellent Track Record
Over the past three years, MPC’s revenue has grown at a 14.5% CAGR, while its EBITDA has grown at a 31.5% CAGR.
During the same period, the company’s net income and EPS increased at 56.1% and 67.4% CAGRs, respectively.
Favorable Analyst Estimates
Ahead of its earnings release on January 31, analysts expect MPC’s revenue and EPS for the fiscal year ended December 2022 to increase 47.4% and 942.1% year-over-year to $177.74 billion and $25.53, respectively.
MPC has also impressed by topping the consensus estimates in each of the trailing four quarters.
Progressive Asset Utilization by Management
MPC’s trailing-12-month gross profit margin of 13.51% is higher than its 5-year average of 9.97%. Likewise, the company’s trailing-12-month EBITDA and net income margins of 11.23% and 6.89% also surpass the respective 5-year averages of 6.68% and 1.62%.
MPC’s trailing 12-month return on common equity of 43.83% is 110.7% higher than the industry average of 20.81%. The company’s trailing 12-month return on total capital of 16.61% compares favorably with the industry average of 8.50%, while its trailing 12-month return on total assets of 13.34% also beats the industry average of 6.88%.
Bullish Price Action
MPC’s stock is currently trading above its 50-day and 200-day moving averages of $117.92 and $102.58, respectively, indicating a bullish trend. The stock has gained 16.4% over the past month and 53.9% over the past six months to close the last trading session at $135.35.
Despite the recent uptrend in its price, in terms of forward non-GAAP P/E, MPC is currently trading at 5.08x, 37.5% lower than the industry average of 8.13x. The stock’s forward EV/Sales and EV/EBITDA multiples of 0.48 and 3.62 are 73.9% and 34.3% lower than the respective industry averages of 1.84 and 5.50.
Also, its forward Price/Sales multiple of 0.34 compares favorably to the industry average of 1.38.
Such low valuations give MPC’s stock headroom for potential upside.
POWR Ratings Reflect Stellar Prospects
MPC’s overall B rating translates to a 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, impressive track record, and favorable analyst estimates.
MPC ranks #8 of 92 stocks in the B-rated Energy – Oil & Gas industry.
Click here to see additional POWR Ratings for Value, Sentiment, and Stability for MPC.
In addition to its strong fundamentals and multiple tailwinds acting in line to keep demand strong, MPC’s consistently 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 the above factors, 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 B, equating to a Buy. Check out these other stocks within the Energy- Oil & Gas industry with an A (Strong Buy) rating: Valero Energy Corp. (VLO), PrimeEnergy Resources Corporation (PNRG), and Epsilon Energy Ltd. (EPSN).
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MPC shares were trading at $132.91 per share on Friday afternoon, down $2.44 (-1.80%). Year-to-date, MPC has gained 14.19%, versus a 6.25% 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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