Goldman Sachs lifted its rating on Marathon Petroleum (MPC) from "neutral" to "buy" today. The firm cited the company's high quality assets and growing commitment to return cash to shareholders as the main drivers for its upgrade. I have recently become more positive on the refining sector due to its low valuations and improving fundamentals. The industry should also benefit by lower oil prices. I have core positions in the space with Tesero (TSO) and Phillips 66 (PSX) which I received as a result of holding Conoco Phillips (COP). Marathon also looks like a good value play here.
Five additional reasons to pick up MPC at $42 a share:
- Consensus earnings estimates for both FY2012 and FY2013 have both been ramped up sharply over the last three months.
- The stock is cheap at around 6 times trailing earnings and five times operating cash flow.
- In addition to Goldman's upgrade and positive comments, the stock is below the mean analysts' price target of $52. Credit Suisse has an "outperform" rating with a $60 price target on MPC.
- The stock has a minuscule five year projected PEG (.27) and sells for just 18% of annual revenues.
- The company provides a solid yield of 2.5% and I would for that to rise consistently over the next few years, give the company's payout ratio of less than 20%.
