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Marathon Petroleum: A Blowout Quarter, But We're Not Chasing

Summary

  • MPC reported its Q2 earnings highlighted by a surge in refining profitability amid record gas prices and sharply higher crack spreads.
  • The company has been active with share repurchases, reaffirming its capital return strategy with an additional buyback authorization.
  • The recent pullback in oil and gas prices suggests a softer earnings environment into the second half of the year.
  • The outlook is good, but we're not chasing the stock higher.
  • Looking for a portfolio of ideas like this one? Members of Conviction Dossier get exclusive access to our model portfolio. Learn More »

Solid Gold Gas Pump

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Marathon Petroleum Corp (NYSE:MPC) just reported its latest Q2 earnings highlighted by a solid beat to estimates. As one of the largest oil refiners in the U.S., the company has capitalized on tight supply conditions and record

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This article was written by

Dan Victor, CFA profile picture
18.58K Followers

Dan Victor, CFA is a market professional with more than 15 years of investment management experience across major financial institutions in research, strategy, and trading roles.

Dan leads the investing group Conviction Dossier, where his focus is on helping investors stay ahead of market trends and inflection points. Dan’s investing vehicles of choice are growth stocks, tactical exchange-traded funds, and option spreads. He shares model portfolios and research to help investors make better decisions, via his Investing Group’s active chat room.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

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Comments (18)

M
Is this performance once in a century? Absolutely, it’s once in a decade. How could I miss it in plain sight? Congrats to share holders who bought the share in the $30s/$40s.
h
Raymond James, who has been fairly accurate in their PTs on refiners to my surprise upped the PT of MPC to $131.
fazsha profile picture
Oh, I get it now, BOOX is a contrarian. MPC reports $10.61 on a $96 stock and BOOX doesn't want to "chase it" because "maybe softer earnings in 2H". Meanwhile, Disney is only expected to report 99 cents, and BOOX says it's a table-pounding buy at $107 because people are returning to theme parks after covid? Do you hear what you are saying? A stock that makes monster earnings is rejected in favor of a more expensive stock with literally one-tenth the earnings. In other news, BOOX reports that up is now down, left is now right, and wrong is now right.
t
@fazsha Are we in a minority to think this is significantly undervalued at this level? Astounding given the recent reported numbers. And even if oil prices soften a bit, it will still be a banner year.
Dan Victor, CFA profile picture
@fazsha just a sector rotation and energy gets a time out. Im honestly surprised by the action in oil right now, dropping farther than I imagined. will set up some good buying opportunity but i favor the producers
fazsha profile picture
@BOOX Research I do too; I just picked a refiner that was near Disney's price to better show the gulf.
M
Agree with the hold rating.trimmed last month @ 100.
Dan Victor, CFA profile picture
@Millysioux thanks for the comment.. good luck
j
Like the other refiners, it is pretty difficult to make a call on where they are going given the conflicting trends in the factors that determine earnings. The buybacks that will be done with the $7.9B in cash designated for them will increase the share value, but not many prospective buyers make their buys on the basis of buybacks. They will mostly be looking for increasing earnings; or, in this case, since it is well known that earnings cannot and will not increase from the Q2 levels, some level of earnings that will be consistent with a higher share price, like an annual earning level of $10 to $15 for a few years, which would be a record for MPC. But, getting there is very uncertain with those falling cracks and gasoline sales/pricing.

On the other hand, the reduced refinery capacity and the continuing Russia/Ukraine war may keep up earning levels for a few years at amounts not seen by MPC previously. Between 2010 and 2020, it was earning $1 to $7 per share annually. So, $10 to $15 in annual earnings would be an all time high and certainly support a higher share price than was seen between 2010 and 2020.
D
Trimmed back MPC at $104, holding the rest to see how this plays out.
s
MPC is using large buybacks to enrich its executives. By shrinking the share count, earnings per share increase artificially, and top management gets bigger bonuses. Selling Speedway, MPC's crown jewel, gave MPC a huge one time cash bonanza, enabling it to buy back shares. The original founders of MPC would be appalled by the actions of present management.
Dan Victor, CFA profile picture
@southbuckeye i agree that the sale of Speedway was a mistake.. they decided to dump it right before the energy sector really turned positive last year.. 7 Eleven stole it!
j
@BOOX Research This is true in hindsight; but with the Andeavor purchase, I believe they wanted to be conservative and concentrate on the refining end of the business.
G
@southbuckeye They caved for Elliott Management who only had 8% or less of the company, when he demanded the sale of Speedway. That was ridiculous.
h
You won’t chase , I won’t sell..lol
Dan Victor, CFA profile picture
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