Marathon Petroleum: Goldman Sachs' Most Undervalued Stock

| About: Marathon Petroleum (MPC)
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Goldman Sachs listed its top 40 most undervalued stocks the other day. At the top of the list was Marathon Petroleum (NYSE:MPC), which Goldman stated had more than 55% possible upside. I don't know MPC has that much upside in it over the short term, but the shares do seem woefully undervalued and I have it in my own portfolio.

Marathon Petroleum engages in refining, transporting, and marketing petroleum products primarily in the United States. In addition to its refineries, the company has ownership interests in approximately 8,200 miles of crude oil and refined product pipelines. It also operates ~5,000 Marathon branded retail outlets and ~1,500 convenience stores in the United States.

Here are seven reasons why Marathon has significant upside from just over $76 a share:

  1. Analysts expect better-than-15% revenue growth for FY 2013. The stock has a five-year projected PEG of under 1 (.69).
  2. A good portion of its revenue growth is going to be driven from the recent $2.4 billion purchase of refinery assets from BP (NYSE:BP). It also just spent over $2 billion to overhaul its Detroit refinery, which grew its total refinery capacity by just less than 100,000 barrels/day.
  3. The company has met or beat earnings estimates for five straight quarters. In addition, consensus earnings estimates for FY 2013 and FY 2014 have moved up over the past three months.
  4. Goldman is not the only entity that thinks Marathon is significantly undervalued. The 16 analysts who cover the shares have a mean price target north of $95 a share on MPC. Standard & Poor's has a "Buy" rating and a $99 price target on the shares.
  5. 62% of the company's refining capacity is on the Gulf Coast. This gives it good access to the cheaper oil heading down from the Canadian oil sands and domestic shale plays.
  6. The company has a $2 billion stock repurchase program in place (~8% of float at current prices) and also pays a dividend of 1.8%.
  7. Marathon Petroleum has more than doubled operating cash flow over the past two fiscal years, and the stock sells for less than 7.5 forward earnings.

Disclosure: I am long MPC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.