Constrained supplies amid geopolitical tensions and increasing global demand for oil and gas, boosted by the reopening of the Chinese economy, could spur oil prices in the upcoming months.
Given this backdrop, let us look at the energy stock Marathon Petroleum Corporation (MPC), which could be a wise choice for investors this summer due to the reasons explained throughout the article.
Despite several headwinds affecting most sectors, the energy sector is anticipated to maintain its positive growth trajectory in the upcoming months. Supply crunch expected to be triggered by the production cuts by OPEC+, and simultaneous record levels of global demand, driven mainly by Chinese demand, could push oil prices up.
Given that such tailwinds could be a boon for the entire energy sector, robust energy stock MPC, with major upside potential, could be a wise choice for investors now.
MPC is involved in midstream and downstream businesses, such as petroleum product refining, marketing, and retail in the United States. The company operates through two segments: Refining & Marketing and Midstream transport.
In the first quarter, the company returned $3.5 billion of capital through $3.2 billion of share repurchases and $337 million of dividends. In April, the company repurchased $1.2 billion of company shares.
Additionally, the board of directors has approved an incremental $5 billion share repurchase authorization, after which the company has a total of $9.0 billion available under its share repurchase authorization.
The stock has gained 13.3% over the past year and 1.7% intraday to close the last trading session at $108.71. Wall Street analysts expect the stock to reach $148.20 in the upcoming 12 months, indicating a potential upside of 36.3%.
Here are the factors that could influence MPC’s performance in the upcoming months:
Solid Financials
For the fiscal first quarter that ended March 31, 2023, MPC’s total revenues and other income stood at $35.08 billion, while its adjusted EBITDA increased 97.7% year-over-year to $5.22 billion. Net income attributable to MPC rose 222.4% from the prior-year quarter to $2.72 billion, and its EPS came in at $6.09, up 308.7% year-over-year.
Robust Profitability
MPC’s trailing-12-month levered FCF margin of 6.72% is 6.2% higher than the industry average of 6.33%. Likewise, its trailing 12-month ROCE, ROTC, and ROTA of 64.18%, 22.71%, and 18.84% are 169.9%, 108.5%, and 116.9% higher than the industry averages of 23.77%, 10.89%, and 8.69%, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, MPC is trading at 6.05x, 27.4% lower than the industry average of 8.33x. The stock’s forward EV/Sales and Price/Sales multiples of 0.50 and 0.33 are 72% and 71.3% lower than the respective industry averages of 1.80 and 1.16, respectively.
Attractive Dividend
On April 26, 2023, MPC’s board of directors declared a dividend of $0.75 per share on the common stock, payable to the shareholders on June 12, 2023. MPC pays a dividend of $3 per share annually. This translates to a 2.76% yield on the current price level.
Its dividends have grown at 7% and 10.4% CAGRs over the past three and five years, respectively. Its four-year average dividend yield is 4.06%.
POWR Ratings Reflect Promising Outlook
It is no surprise that MPC has an overall B rating, equating to Buy in our POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MPC has a grade A for Quality, consistent with its robust profitability.
In addition, the stock has a B grade for Value, in sync with its lower-than-industry valuation multiples.
MPC ranks #12 of 92 stocks in the Energy – Oil & Gas industry.
Beyond what we have mentioned above, to see the additional POWR Ratings for Growth, Sentiment, Momentum, and Stability for MPC, click here.
Bottom Line
Coupled with the multiple industry tailwinds boosting energy demand, MPC’s strong fundamentals and consistently improving operational execution keep the company well-positioned for the upcoming quarters.
The company’s solid financials, reliable dividend payments, and robust profitability could make it a wise portfolio addition now to ensure a steady passive income.
How Does Marathon Petroleum Corporation (MPC) Stack Up Against Its Peers?
While MPC has been rated B, equating to Buy, one can check out these other stocks within the Energy – Oil & Gas industry: Cheniere Energy, Inc. (LNG), which has an A (Strong Buy) rating, and Weatherford International PLC (WFRD) and MV Oil Trust (MVO) which have a B (Buy) rating.
What To Do Next?
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MPC shares were trading at $109.47 per share on Tuesday morning, up $0.76 (+0.70%). Year-to-date, MPC has declined -5.39%, versus a 7.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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