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Why Holding Marathon Petroleum Stock Makes Sense for Now
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Marathon Petroleum Corporation (MPC - Free Report) is a major player in the U.S. petroleum industry, handling refining, marketing and transporting petroleum products. With a significant presence in key regions, including the Gulf Coast, Midwest and West Coast, MPC operates a highly integrated refining system that efficiently processes crude oil into a wide range of products, including gasoline, diesel, jet fuel and petrochemicals. The company’s extensive network of assets, including refineries, pipelines and storage facilities, gives it a strategic edge in the industry.
In the past year, Marathon’s shares have gained 19.4%, outpacing the industry’s growth of 7.2%. This impressive performance reflects the company’s strong operational execution, robust cash flow generation and its shareholder-friendly capital allocation strategies.
Image Source: Zacks Investment Research
What Makes MPC’s Stock a Good Bet?
Expansion in Renewable Energy: MPC’s investments in renewable energy, such as its Martinez renewable fuels facility, reflect the company’s commitment to diversifying its energy portfolio and capitalizing on the growing demand for cleaner energy solutions.
Shareholder Returns and Capital Management: One of the most compelling reasons to retain this stock is the company’s commitment to returning capital to its shareholders. In second-quarter 2024, MPC returned $3.2 billion to its shareholders through share repurchases and dividends. The company’s ongoing share repurchase program, with $5.8 billion still authorized, reflects management’s confidence in its prospects and is expected to provide continued support to the stock price.
Strong Financial Performance: MPC’s financial health remains robust, as evidenced by its second-quarter 2024 results. The company reported net income of $1.5 billion, translating to $4.33 adjusted earnings per share. Although this represents a decline from the previous year, MPC’s adjusted net income of $1.4 billion and adjusted EBITDA of $3.4 billion underline the company’s ability to generate significant earnings even in a challenging environment. MPC generated $3.2 billion in net cash from operating activities, highlighting its strong cash flow capabilities.
Midstream Growth and Strategic Investments: MPC’s Midstream segment, MPLX, has been a significant contributor to the company’s overall performance. This segment’s adjusted EBITDA increased 6% year over year in second-quarter 2024, driven by higher volumes, improved rates and contributions from recent acquisitions. MPLX’s strategic investments, particularly in the Permian and Marcellus basins, are expected to drive further growth, making this segment a key pillar of MPC’s future earnings stability. The company’s strategic investments in high-return projects, such as Los Angeles and Galveston Bay refineries, are aimed at enhancing refinery yields, improving energy efficiency and lowering operational costs. These initiatives are expected to bolster MPC’s profitability in the coming years.
Operational Excellence and Efficiency: MPC’s operational efficiency is another reason to hold the stock. The company achieved a crude capacity utilization rate of 97% in second-quarter 2024, resulting in high throughput and reflecting strong demand for its Refining & Marketing (R&M) segment. Marathon Petroleum has managed to reduce the company’s refining operating costs per barrel to $4.97, down from $5.15 in the prior-year quarter, further enhancing its margin.
Strong Liquidity and Financial Flexibility: As of June 30, 2024, MPC had $8.5 billion in cash and cash equivalents and short-term investments, providing it with substantial financial flexibility. This strong liquidity position enables MPC to navigate economic uncertainties, invest in growth opportunities and continue returning capital to its shareholders without compromising the company’s balance sheet.
Outlook for Continued Demand Growth: Looking ahead, global demand for refined products is set to keep rising and 2024 is expected to break records for consumption. MPC is well-positioned to benefit from this trend, given its strategic asset base and competitive advantage in key markets. With its operations spread across the Gulf Coast, Midwest and West Coast, the company is well-positioned to take advantage of new opportunities as demand grows faster than the expansion of new production capacity.
Risks to Watch in Marathon Petroleum
High Turnaround Costs:. The company is dealing with significant turnaround costs, estimated at around $330 million for third-quarter 2024, which may affect short-term profitability.
Oil Price Volatility: Oil price volatility is another concern, as a significant drop in oil prices can impact margins and earnings. High capital expenditures, including turnaround costs, may also limit the cash available for debt reduction or increased dividends. The margin per barrel in the R&M segment dropped to $17.37 in second-quarter 2024 from $22.10 in the year-ago period, reflecting ongoing market challenges.
Competitive Market Pressures: MPC also faces intense competition from other major refiners and independent operators, which will impact its market share and profitability, if competitors are able to operate at lower costs or offer more competitive pricing.
Dependency on MPLX Distributions: A significant portion of MPC's cash flow comes from MPLX distributions. Any downturn in MPLX's performance, such as from declining demand for natural gas and NGLs, will impact MPC's financial health.
Recent Earnings Drop: Another concern is MPC’s recent earnings decline. MPC's second-quarter adjusted earnings per share came in at $4.12, a decline from $5.32 in the same period last year, due to decreased refining margins. The Zacks Consensus Estimate for third-quarter 2024 earnings has witnessed two downward movements in the past 30 days. The estimated figure indicates a 61% decline year over year. These changes indicate that MPC’s financial outlook is weakening.
Denver, CO-based SM Energy is valued at $5.28 billion. The company currently pays a dividend of 72 cents per share, or 1.56%, on an annual basis. SM, an independent energy company, engages in the acquisition, exploration, development and production of oil, gas and natural gas liquids in the state of Texas.
TechnipFMC is valued at $11.49 billion. The company currently pays a dividend of 20 cents per share, or 0.75%, on an annual basis. TechnipFMC plc engages in energy projects, technologies and systems and services businesses in Europe, Central Asia, North America, Latin America, the Asia Pacific, Africa, the Middle East and internationally. It operates through two segments: Subsea and Surface Technologies.
Findlay, OH-based MPLX LP is valued at $43.23 billion. In the past year, its shares have risen 20.4%. MPLX owns and operates midstream energy infrastructure and logistics assets in the United States. It operates under two segments, namely Logistics and Storage, and Gathering and Processing.
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Why Holding Marathon Petroleum Stock Makes Sense for Now
Marathon Petroleum Corporation (MPC - Free Report) is a major player in the U.S. petroleum industry, handling refining, marketing and transporting petroleum products. With a significant presence in key regions, including the Gulf Coast, Midwest and West Coast, MPC operates a highly integrated refining system that efficiently processes crude oil into a wide range of products, including gasoline, diesel, jet fuel and petrochemicals. The company’s extensive network of assets, including refineries, pipelines and storage facilities, gives it a strategic edge in the industry.
In the past year, Marathon’s shares have gained 19.4%, outpacing the industry’s growth of 7.2%. This impressive performance reflects the company’s strong operational execution, robust cash flow generation and its shareholder-friendly capital allocation strategies.
Image Source: Zacks Investment Research
What Makes MPC’s Stock a Good Bet?
Expansion in Renewable Energy: MPC’s investments in renewable energy, such as its Martinez renewable fuels facility, reflect the company’s commitment to diversifying its energy portfolio and capitalizing on the growing demand for cleaner energy solutions.
Shareholder Returns and Capital Management: One of the most compelling reasons to retain this stock is the company’s commitment to returning capital to its shareholders. In second-quarter 2024, MPC returned $3.2 billion to its shareholders through share repurchases and dividends. The company’s ongoing share repurchase program, with $5.8 billion still authorized, reflects management’s confidence in its prospects and is expected to provide continued support to the stock price.
Strong Financial Performance: MPC’s financial health remains robust, as evidenced by its second-quarter 2024 results. The company reported net income of $1.5 billion, translating to $4.33 adjusted earnings per share. Although this represents a decline from the previous year, MPC’s adjusted net income of $1.4 billion and adjusted EBITDA of $3.4 billion underline the company’s ability to generate significant earnings even in a challenging environment. MPC generated $3.2 billion in net cash from operating activities, highlighting its strong cash flow capabilities.
Midstream Growth and Strategic Investments: MPC’s Midstream segment, MPLX, has been a significant contributor to the company’s overall performance. This segment’s adjusted EBITDA increased 6% year over year in second-quarter 2024, driven by higher volumes, improved rates and contributions from recent acquisitions. MPLX’s strategic investments, particularly in the Permian and Marcellus basins, are expected to drive further growth, making this segment a key pillar of MPC’s future earnings stability. The company’s strategic investments in high-return projects, such as Los Angeles and Galveston Bay refineries, are aimed at enhancing refinery yields, improving energy efficiency and lowering operational costs. These initiatives are expected to bolster MPC’s profitability in the coming years.
Operational Excellence and Efficiency: MPC’s operational efficiency is another reason to hold the stock. The company achieved a crude capacity utilization rate of 97% in second-quarter 2024, resulting in high throughput and reflecting strong demand for its Refining & Marketing (R&M) segment. Marathon Petroleum has managed to reduce the company’s refining operating costs per barrel to $4.97, down from $5.15 in the prior-year quarter, further enhancing its margin.
Strong Liquidity and Financial Flexibility: As of June 30, 2024, MPC had $8.5 billion in cash and cash equivalents and short-term investments, providing it with substantial financial flexibility. This strong liquidity position enables MPC to navigate economic uncertainties, invest in growth opportunities and continue returning capital to its shareholders without compromising the company’s balance sheet.
Outlook for Continued Demand Growth: Looking ahead, global demand for refined products is set to keep rising and 2024 is expected to break records for consumption. MPC is well-positioned to benefit from this trend, given its strategic asset base and competitive advantage in key markets. With its operations spread across the Gulf Coast, Midwest and West Coast, the company is well-positioned to take advantage of new opportunities as demand grows faster than the expansion of new production capacity.
Risks to Watch in Marathon Petroleum
High Turnaround Costs:. The company is dealing with significant turnaround costs, estimated at around $330 million for third-quarter 2024, which may affect short-term profitability.
Oil Price Volatility: Oil price volatility is another concern, as a significant drop in oil prices can impact margins and earnings. High capital expenditures, including turnaround costs, may also limit the cash available for debt reduction or increased dividends. The margin per barrel in the R&M segment dropped to $17.37 in second-quarter 2024 from $22.10 in the year-ago period, reflecting ongoing market challenges.
Competitive Market Pressures: MPC also faces intense competition from other major refiners and independent operators, which will impact its market share and profitability, if competitors are able to operate at lower costs or offer more competitive pricing.
Dependency on MPLX Distributions: A significant portion of MPC's cash flow comes from MPLX distributions. Any downturn in MPLX's performance, such as from declining demand for natural gas and NGLs, will impact MPC's financial health.
Recent Earnings Drop: Another concern is MPC’s recent earnings decline. MPC's second-quarter adjusted earnings per share came in at $4.12, a decline from $5.32 in the same period last year, due to decreased refining margins. The Zacks Consensus Estimate for third-quarter 2024 earnings has witnessed two downward movements in the past 30 days. The estimated figure indicates a 61% decline year over year. These changes indicate that MPC’s financial outlook is weakening.
Zacks Rank and Key Picks
Currently, MPC holds a Zacks Rank #3 (Hold). For those looking at better options in the energy sector, consider SM Energy Company (SM - Free Report) with a Zacks Rank #1 (Strong Buy), TechnipFMC plc (FTI - Free Report) and MPLX LP (MPLX - Free Report) , each carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Denver, CO-based SM Energy is valued at $5.28 billion. The company currently pays a dividend of 72 cents per share, or 1.56%, on an annual basis. SM, an independent energy company, engages in the acquisition, exploration, development and production of oil, gas and natural gas liquids in the state of Texas.
TechnipFMC is valued at $11.49 billion. The company currently pays a dividend of 20 cents per share, or 0.75%, on an annual basis. TechnipFMC plc engages in energy projects, technologies and systems and services businesses in Europe, Central Asia, North America, Latin America, the Asia Pacific, Africa, the Middle East and internationally. It operates through two segments: Subsea and Surface Technologies.
Findlay, OH-based MPLX LP is valued at $43.23 billion. In the past year, its shares have risen 20.4%. MPLX owns and operates midstream energy infrastructure and logistics assets in the United States. It operates under two segments, namely Logistics and Storage, and Gathering and Processing.