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Marathon Petroleum - More Than 350% Upside Potential With Very Limited Downside Risk

Richard Mayevski profile picture
Richard Mayevski


  • Even after a significant increase from recent lows, the firm still offers one of the best risk/reward tradeoffs.
  • MPC has one of the finest assets base in the U.S. petroleum space and is currently significantly undervalued.
  • The two main catalysts are the end of the pandemic and the pressure from one of the largest activist funds in the world.

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What do you get when you have a pandemic that adversely impacts the demand for oil, a downstream player with a strong balance sheet, a misunderstood quality asset base, and one of the largest activist shareholder groups in the world? The answer is a buying opportunity with 2-4X upside potential with very limited downside risk.

Overview of assets

Marathon Petroleum Corporation (NYSE:MPC) is an integrated downstream oil company. Simply put, the firm owns and operates retail (gas stations and convenience stores), midstream, and refining operations. The largest contributor to income from operations was the midstream business, then the refineries, and lastly the retail & marketing segment.

(Source: Company's 2019 annual report)


MPC owns and operates a coast-to-coast refinery operation with 16 refineries that spreads-out across the US. The economics behind the refining business is such that MPC benefits from a low oil price environment as long as there is a high demand for crude oil products (e.g., gasoline). In other words, in a perfect world for a downstream business, such as MPC, crude prices are low and the demand for refined products is high.

(Source: Company's 2019 annual report)

(Source: Company's September 2019 Investors presentation)

Marketing & Retail

MPC's retail operation includes 3,898 company-owned and convenience stores across the US (under the brand name "Speedway"). Additionally, the firm has long-term supply contracts for 1,068 direct dealers primarily in southern California (largely under the "ARCO brand"). MPC also supplies gasoline to independent entrepreneurs which maintain branded outlets, marketed under Marathon, Shell, Mobil, and other brands.

This article was written by

Richard Mayevski profile picture
A contrarian value retail investor. Screening for mispriced financial assets that offer low-risk-high returns profile. Focuses on financial assets (mainly bonds and different equities). Strong understanding within the Energy, Chemical, Commodities, Infrastructure, and Industrials. Has more than 7 years of experience in the Insurance industry. Follow & contact me on LinkedIn: https://www.linkedin.com/in/richardmayevski/

Analyst’s Disclosure: I am/we are long MPC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

I’m invested in MPC since it went down to the low twenties. I do advocate my readers to come up with their own opinion as to how much MPC is worth: I provided you with my thoughts. If you enjoyed this article or you share my enthusiasm for finding mispriced assets follow me on Seeking Alpha or and please feel free to share your opinion in the comments.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (75)

Darren McCammon profile picture
It's better to invest in firms that share projects. This is because these projects are less speculative, reducing cash flow and completion risk . For example the 650-mile, 1.5-MMb/d Wink-to-Webster 'WtW' pipeline continues to be built despite Permian production concerns because its owners are seeking to connect assets on both sides and have provided minimum volume commitments. ExxonMobil ($XOM) for instance has assets on both ends. They are a major Permian producer on one end and the owner of a 561-Mb/d refinery in Baytown and another 362-Mb/d refinery in Beaumont, TX on the other. Similarly WtW investor MPLX's parent ($MPLX), Marathon Petroleum ($MPC), owns the 585-Mb/d Galveston Bay refinery in Texas City that will be serviced by this pipeline. WtW investor Delek ($DK) owns refineries being serviced. WtW investor Rattler Midstream's ($RTLR) parent, Diamondback Energy ($FANG) is a leading Permian producer. Again companies who participate in these kinds of deals face less completion and cash flow risk than those who go it alone.
Grant Beaty profile picture
I went long MPC the day before this article was published, as a way to get long exposure to gasoline demand. One thing which isn't mentioned here is covid is increasing driving relative to other forms of transportation. Buses, trains and planes use less fuel but are also less safe during a pandemic.
I like mpc with speedway.They should keep it this way .Keep the money in the USA..pay the share holders a good dividend.and that's the way the only way,forget Tokyo or India or who ever it is.keep the money here.,in our economy.

They could spin it off and keep it here. Elliott is right though, it would unlock value.
tortoise1962 profile picture
Honest question: Why are mergers good as cost consolidators, but then they are targeted for dismantling to unlock value? I don’t expect a simple answer, but would appreciate a pointer in the right direction.
Medusa's Head profile picture
The conspiracy theorist in me says it's a game investment banks play to earn fees. Merge to create synergies, dismantle to unlock value! Rinse, repeat.
ShankaSwingTrades profile picture
Scaling into MPC. Thanks for the feedback.
Thanks for the article I’m in at 23.68$ on mpc and enjoying the ride!
Thanks for the article.
Richard Mayevski profile picture
I want to thank everyone for their warm comments, it is motivating and I'm glad that some of you found it beneficial.

In the next two weeks, I will try to publish at least another investment idea (good investment idea are rare) on Seeking Alpha so stay tuned :)

horowitzcpa profile picture
@Richard Mayevski thank you - I tripled my investment in MPC this morning
Good luck. I would buy more if I could right now. I put a lot of money into MPC, HFC, and PSX in that order in the 10 days of March. I decided to gamble 90% of the cash I raised into refiners and the other 10% into Pfizer in the low 30's. So far it has paid off but really thinking the refiners will keep advancing.
I didn't notice any mention of the dividend on the CC. Did I miss something?
Richard Mayevski profile picture
Hi @Pablomike Thank you for your comment.
I did mention that they are going to slightly increase their quarterly dividend. The ex-date is 19/05.
Pablomike profile picture
Don't know why I'm tagged here. I had no comment about dividend.
vikingglobetrotter profile picture
Great article! Well-researched!
Shell vs Marathon? Which has a better chance of doubling at these prices both are 31 and change
I would say MPC because Shell is more reliant on higher oil prices than MPC is.
Thanks Tyler. Do you know if I missed the spinoff date if I buy today I'm trying to find the spinoff date.
in my opinion you did not miss spin off date if you go long now... I do not think a date has been set...they are talking 4th quarter for spin off … someone will correct me if I am wrong...
BM Cashflow Detective profile picture
Great first article. Current assets ($ 20.2 billion) exceed current liabilities ($ 16.1 billion). Current assets ($ 20.2 billion) do not cover long-term liabilities ($ 39.3 billion). The balance sheet is apparently strong enough to be able to exist for some time with a minus income. Would you dare well-founded to estimate how long the MPC could exist with negative results?
HariSeldon522 profile picture
Thx for your article!!!!
Pts117 profile picture
This is exactly the back of the napkin math I've been doing (although yours is very well spelled out), with ONE caveat... your Valuation section is spot on for EV, HOWEVER, looking at the Market cap (i.e. the implied equity valuation for the refining operation) is even more stunning... by backing out the $10B in MPC debt the equity is worth negative dollars, even under the extreme scenario where you lop $5B+ off of the Speedway price. In other words, the refining operation is priced for bankruptcy (but not sure how bankruptcy makes equity worth negative dollars)...
Great analysis of MPC and MPLX. Long both and hoping MPC stays in the 20s so I can increase my position. I cannot envision a scenario where MPC is below $60 in 5 years. Plus a nice dividend. Place your bets accordingly!
Refiners are going to make a lot of money when they start ramping up utilization. I have been long PSX for a while now. Also like MPLX, which should do well once we get past this virus induced funk in some of the products they handle.
CKut profile picture
Excellent article. Really broadened my understanding of the company. Started buying at around $50 and have cost averaged down quite a bit into the $30s. Really like the valuation and has a very large, and most importantly healthy dividend. This article confirmed many of the original thoughts I formed when researching this company for myself and I feel very confident that this is a great play long term.
Sundance Utah profile picture
I bought 2K shares of MRO @ $3.18, then panic sold them due to all the negative press. MRO is another example of buying a solid company at greatly reduced prices despite the drumbeat of pessimism. I will reenter within the next two days wiser and holding for the long term.
Gtoz profile picture
@Sundance Utah This article is about MPC not MRO.
Great article Richard. Welcome and thank you! The big increase in w-o-w gasoline demand as shown in today's EIA report shows the worst in gasoline demand is behind us and that's great news for MPC. Also, I'm hearing of people driving instead of flying, and also relieving boredom by taking drives in the countryside. Gas demand is up from here.
Bought MPC for the spin of Speedway
but it seems that oil/gas will be just
as a good investment not sure many
were aware of the Flying J tie in all we
now is patience
If I buy MPC today do I still get the spinoff shares? Do you know when that takes place or did I already miss it???? Thanks
DRIPingVal profile picture
@pooberry45 The deal to sell Speedway to 7/11 fell through in February (I think). That deal included distributing Speedway shares to $MPC shareholders.

Advisors encouraged the previous CEO to spin Speedway off, but he retired in March. That was a planned/announced retirement dating back to the fall.

Given the current market crises, I doubt anyone will have the CAPEX abilities to purchase Speedway. And if I were the new CEO, I wouldn't sell it. Speedway is a cash cow waiting to happen.
Thanks for your reply appreciate the info!
Pablomike profile picture
What makes you think they have idle storage with which to take advantage of??? I would think most of it is already contracted as it wouldn't have been built without long term contract.
Richard Mayevski profile picture
Hi @Pablomike, Thank you for your comment.
You raise a good point, and in hindsight maybe I should have stressed out more that MPC and MPLX have a strategic alliance.

MPC holds the general partner in MPLX. This resulted in a strategic alliance with MPLX and in 2019 more than 93% of MPLX's revenue in the logistics and storage segments came from MPC.

This fact does leave my thesis intact as MPC virtually have access to almost all of MPLX's storage and logistics assets

if you want to see the details, I refer you to the 2019 MPLX's annual report, page 148.
On MPC'c cc, management did say that they could take advantage of the contango in crude, without providing further detail.
Pablomike profile picture
I'm sure they can. I'm just saying it isn't like they had just millions and millions of barrels of empty tanks just waiting for the chance. I'd be really surprised if it's more than 10% of their total.
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