Goldman Sachs lifted its rating on Marathon Petroleum (NYSE: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 (NYSE:TSO) and Phillips 66 (NYSE:PSX) which I received as a result of holding Conoco Phillips (NYSE: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%.