Morningstar | Marathon Petroleum’s Refining Assets Shine in 2Q
Thanks to strong performance from its refining segment, Marathon Petroleum increased second-quarter earnings to $1.06 billion from $483 million a year ago. The refining segment capitalized on strong refining margins and wide crude spreads by processing record volumes to deliver operating income of $1.03 billion, versus $562 million a year ago. That growth comes despite $232 million of earnings that were dropped down to MPLX in February, demonstrating the strength of Marathon’s refining asset base, which the market might have previously overlooked, given its integrated model. Record volumes, combined with the dropped assets, pushed midstream (including MPLX) operating income to $617 million from $332 million a year ago. Speedway proved to be the weak link during the quarter, as the increase in oil prices crimped margins, resulting in operating income falling to $159 million from $238 million last year. However, the segment remains on track to increase earnings over the long term as new stores are added and remodels of existing stores improve margins.Shareholder returns during the quarter totaled $1.1 billion, including $885 million in share repurchases. Although activity might slow as the closing of Andeavor later this year approaches, we expect repurchase activity to continue, given the current repurchase authorization of over $5 billion and management’s commitment to returning cash to shareholders.
Marathon shares have underperformed the group in the wake of the Andeavor announcement and as investors sought out pure-play refiners to capitalize on the current environment. This has left it trading at the greatest discount to our fair value estimate in the group. We think the quarter demonstrates that MPC is also well positioned to benefit, given its high quality and geographically well-positioned refining assets, while its integrated model can deliver value in a variety of market environments. Our fair value and moat rating are unchanged.
Marathon Petroleum is an independent petroleum refining and marketing, retail and midstream company. The company's segments include: Refining and Marketing, which refines crude oil and other feedstocks at its refineries, purchases refined products and ethanol for resale and distributes refined products; Retail, which sells transportation fuels and convenience products in the retail market across the U.S.; and Midstream, which transports, stores, distributes and markets crude oil and refined products via refining logistics assets, pipelines, terminals, towboats and barges, gathers, processes and transports natural gas, and gathers, transports, fractionates, stores and markets natural gas liquids.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.