Marathon Petroleum Inventory: Upgrading To Purchase (NYSE:MPC)

Again in March, I wrote that the inventory of Marathon Petroleum (NYSE:MPC) had some upside, however not sufficient to place it within the purchase class. With inventory buying and selling decrease since then, let’s take an in depth have a look at its most-recent earnings from earlier this month.

Q1 Earnings

For the quarter, MPC noticed its income decline -9% to $35.1 billion from $38.4 billion. Analyst have been on the lookout for income of $35.2 billion.

Refining and advertising and marketing margin was $26.15 per barrel of web refinery throughput. That was up from $15.31 a yr in the past. In This autumn, excluding LIFO stock credit, the margin was $28.16.

Adjusted EBITDA almost doubled to $5.2 billion from $2.6 billion a yr in the past. Refining and advertising and marketing phase EBITDA almost tripled to $3.9 billion from $1.4 billion. Midstream adjusted EBITDA, in the meantime, rose 9% to $1.5 billion.

Earnings soared from $845 million, or $1.49 a share, final yr to $2.72 billion, or $6.09 a share. MPC’s diluted weighted common shares have been -21% decrease yr over yr. Analysts have been on the lookout for EPS of $5.80.

Web refinery throughput was 2.84M bbl/d, largely unchanged from 2.83M bbl/d a yr in the past. Crude capability utilization was 89% versus 91% a yr in the past.

MPC generated working money move of about $4.1 billion, whereas free money move was $3.6 billion. It spent $3.2 billion to purchase again inventory within the quarter. The board additionally introduced a further $5 billion share repurchase authorization.

It ended the quarter with $27.7 billion in consolidated debt, however solely $7.0 billion on the MPC stage, with the majority held at its midstream operator MPLX (MPLX). MPC had $11.5 billion in money and short-term investments on its steadiness sheet.

General, it was one other robust quarter from MPC as crack spreads remained elevated in comparison with historic ranges. Utilization ranges remained strong, whereas MPLX additionally confirmed good progress as effectively. The corporate additionally continued with its aggressive buyback plan, persevering with to place its ample money move to work to considerably scale back its share depend.

Outlook

Trying forward, MPC guided for refinery throughput of two.86M bbl/d for Q2. Crude throughput is predicted to be 2.65 bbl/d. Utilization is forecast to edge as much as 91% in Q2, as there will likely be much less turnaround exercise than in Q1.

It projected refining working prices per barrel of $5.20. Because the yr progresses, it expects it to pattern extra in the direction of $5.00.

MPC is anticipating distribution prices of $1.35 billion and turnaround prices of $400 million. Company prices are anticipated to be round $175 million.

Turning to progress tasks, the corporate accomplished its STAR challenge in Q1. STAR is projected so as to add 40,000 barrels per day of incremental crude capability and 17,000 barrels a day of resid processing capability. MPC determined to improve the resid hydrocracker unit as a substitute of increasing the GBR cokers, because it provided higher conversion and elevated liquid quantity yield. Begin-up actions are in progress and it expects to ramp manufacturing all through Q2.

In the meantime, Part 1 of its Martinez renewable fuels facility reached full manufacturing capability, and Part 2 development is underway. Pretreatment capabilities are forecast to return on-line within the second half, permitting the ability to ramp as much as full capability by year-end.

Discussing the present market on its Q1 name, CVP of International Feedstock Rick Hessling mentioned:

“So we’ll contact on the West Coast right here in a second. However while you assume globally, it is an important name out to place Asia and Singapore in a bucket, however I would additionally throw Europe into that bucket as effectively. And if we have discovered something during the last couple of years as commerce flows and cracks or the world is extra linked than it is ever been. So it is a actually good name out in drawing if there’s a actually affect to the U.S. refiners. One factor I would say is as we have a look at Asia and Europe particularly, we truly see that as help for U.S. cracks. We see it as bullish for MPC. I imply we’re listening to rumors of each areas you talked about, Singapore and Asia and Europe, we’re listening to rumors of run cuts there, which we see as bullish for us, particularly on the West Coast, as you understand, the incremental barrel at instances comes from Asia. And if it would not come to the West Coast, we see that as optimistic for margins and cracks.

“After which lastly, I would say our breakeven is structurally decrease than it has been prior to now. And as we view Europe because the marginal participant on this planet, we have now a aggressive benefit, as you understand, on power prices, feedstock acquisition, complexity of our refineries, our workforce, our reliability. After which final, however actually not least, we have now an unimaginable international export program on merchandise. So we’re capable of clear our markets fairly effectively. So we consider while you add all of these up, it actually offers us fairly the aggressive benefit, particularly within the West Coast, however I’d say in PADDS 2, 3 and 5 the place we function.”

The corporate additionally famous that on the demand facet, it’s seeing optimism with regard to the summer time driving season. It mentioned it’s seeing some demand curtailment in distillates, and that that is one thing it’s watching carefully.

Crack spreads are anticipated to proceed to float decrease because the yr progresses, however they’ve come up for the spring and summer time since final time I checked out them in my prior MPC write-up. Whereas MPC has added some good progress tasks, it’ll nonetheless be refining margins that play the most important rose in how the corporate’s future outcomes play out.

Valuation

MPC trades at a 4.1x EV/EBITDA a number of based mostly on the 2023 EBITDA consensus of $15.9 billion. Based mostly off of the 2024 EBITDA consensus of $12.3 billion, it trades at round 5.2x.

It trades at 6x ahead EPS, with analysts forecasting 2023 EPS of $18.18

MPC’s inventory usually trades consistent with different refiners.

Conclusion

General, MPC is a strong refiner that’s having fun with the advantages of a powerful margin surroundings. This received’t final without end, however the firm is doing the suitable factor aggressively funneling its plentiful free money move to scale back its share depend.

MPC’s stake in MPLX, in the meantime, is price about $22 billion. Based mostly on extra normalized refining EBITDA of $3 billion, I’ve MPC buying and selling on a standalone foundation round 6x normalized EBITDA, accounting for its present share inventory buyback.

I believe MPLX is undervalued, and that 6x for MPC standalone based mostly on mid-cycle EBITDA is enticing. As such, I’m going to boost my score on MPC inventory to a “Purchase.” My $140 worth goal from my earlier article stays unchanged.