Marathon Petroleum Upped to Neutral - Analyst Blog


On Jan 8, 2014, we upgraded independent oil refiner and marketer Marathon Petroleum Corp. ( MPC ) to Neutral from Underperform.

Why the Upgrade?

Spun out of parent Marathon Oil Co. ( MRO ) in 2011, the company's positives include its scale advantage, impressive asset quality and an extensive midstream/retail network. We believe management's steady dividend increases, the ongoing share repurchase program and the recent acquisition of BP Plc 's ( BP ) Texas City refinery could further boost shareholder value.

Detailed Analysis

Marathon Petroleum is the fourth largest domestic refiner with a combined crude oil processing capacity of approximately 1.7 million barrels per day through its portfolio of seven 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.

Marathon Petroleum's purchase of BP's Texas City refinery - one of the largest and most complex in the country - will consolidate the position of the former in the fuel export business, apart from improving production flexibility.

The Findlay, Ohio-based firm's financial flexibility and strong balance sheet are real assets in this highly-uncertain period for the economy. Marathon Petroleum remains in excellent financial health, with over $2 billion in cash/cash equivalents and an investment-grade credit rating with a debt-to-capitalization ratio of 23%. Furthermore, regular dividend increases and the ongoing share buyback program highlight the company's commitment to create value for shareholders.

Stocks That Warrant a Look

While we expect Marathon Petroleum Resources to perform in line with its peers and industry levels in the coming months and advice investors to wait for a better entry point before accumulating units, one can look at CVR Energy Inc. ( CVI ) as a good buying opportunity. This downstream energy operator - sporting a Zacks Rank #1 (Strong Buy) - has solid secular growth  with the potential to rise considerably from the current level.

BP PLC (BP): Free Stock Analysis Report

CVR ENERGY INC (CVI): Free Stock Analysis Report

MARATHON PETROL (MPC): Free Stock Analysis Report

MARATHON OIL CP (MRO): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BP , CVI , MPC , MRO

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