Marathon Petroleum Is a Screaming Buy

Marathon Petroleum (MPC) announced first quarter ended March 31, 2016 total revenue of $12.8 billion, down 26 percent year-over-year from $17.2 billion during the same period last year.

Marathon declared first quarter of 2016 net income of $1 million or $0.003 per diluted share, down 99.9 percent year-over-year from $891 million or $1.62 per diluted share in first quarter of 2015.

Smart moves

The downstream energy company reported continued year-over-year decline in both its top and bottom lines primarily due to the ongoing weakness in the global commodity demand and pricing environment coupled with the rising transportation costs, eating into the company’s key margins.

Marathon results for the quarter highlights the key impact of the goodwill impairment and weaker inventory valuation at market cost or lower rate along with major cost impact from the completed key turnaround activity and upgradation of the refinery light crude project.

The variance analysis of Marathon first quarter of 2016 total earnings depicts the impact of significant refining and marketing expenditures, speedway, midstream, items not allocated to segments, impairment, income taxes, non-controlling interests, interest and other financing expenses on the company’s key cash flows and thus, delivering just $1 million of consolidated quarterly earnings.

The ongoing-cost-optimization efforts of Marathon by minimizing the non-core expenses and paying-off all the major expenditures for the quarter through its key cash flows is believed to strongly position the downstream company for delivering sustainable long-term growth once the global commodity demand and pricing environment recovers completely while delivering attractive shareholder returns.

Investor friendly

Total company cash flows for Marathon declined 73 percent year-over-year to $308 million in first quarter of 2016 from $1.1 billion of total cash flows during the same period last year.
This year-over-year decline in total company cash flows is attributed to several core expenses during the quarter including, working capital expense, net debt, returning of capital to the key stakeholders, cash capital investments and expenditures.

Despite the continuing tough global operating environment, Marathon seems keen on returning a majority of the invested capital to the shareholders in form of dividends and planned share repurchases consistently and thus, uniquely announced a cash dividend payment of $0.32 per share payable June 10, 2016 to all the shareholders as of May 18, 2016 which is in line with its continued commitment to offer attractive shareholder returns.  In all, Marathon returned a total of $244 million of its capital to the key stakeholders. Further, the company lowered its capital spending program for 2016 to $3 billion, down about 30 percent from earlier declared expenditure target of $4.2 billion.

This consistent investor-friendly approach of Marathon to deliver superior shareholder returns while uniquely managing its daily operations is expected to soon start generating significant company profitability after the global slowdown comes to an end and further attract several other key investors to be a part of this growth story.

The revenue decline for Marathon somewhat underperformed the key industry’s average of 24.5% and therefore, negatively impacted the company’s bottom line and reducing the quarterly earnings per share.  Marathon has strategically executed on its long-term goals including, improvement of refining margins through export capacity expansion and enhanced distillate capacity, significant growth of brand volumes and Speedway, unique and planned acquisitions and mergers that include Hess Retail Galveston Bay refinery, Road Ranger, Gas America and Gas City, expansion of notable cash flow businesses including, Speedway store count increased by 1,378, balanced reinvestments into business and offering attractive shareholder returns.


Overall, the investors are advised to buy Marathon Petroleum Corporation considering significant long-term growth prospects of the company but, currently weaker global operating environment and the company’s financial position with notable total debt of $11.57 billion against weaker total cash position of $308.00 million, restricting Marathon to continue with its daily operations profitably. The profit margin of 3.27% seems only marginal. The PEG ratio of 59.63 signifies healthy company growth compared to weaker industry’s growth average of 0.66 only.
Published on Jul 8, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

Posted in ...