Get the Latest Investment Ideas Delivered Straight to Your Inbox. Subscribe


Merger of Two Independents to Create 'Largest U.S. Refiner'
Research Report

Share on Stocktwits


Raymond James reported on the recently announced proposed deal.

An April 30, 2018, research note issued by Raymond James indicated that Marathon Petroleum Corp. (MPC:NYSE) has agreed to merge with Andeavor (ANDV:NYSE). "The combined entity will possess 3-plus million barrels per day of refining capacity, making it the largest domestic refiner, with a diverse and expansive footprint," wrote analyst Justin Jenkins. Marathon's management estimates about $1 billion ($1B) worth of run rate synergies will be achieved within three years of the transaction's closing, slated for H2/18.

Under the agreement terms, "Andeavor shareholders will receive either 1.87 shares of Marathon for each Andeavor share or $152.27 per share subject to a maximum 15% cash component (~$3.5B)," explained Jenkins.

Raymond James views the proposed merger as positive. "Strategically, we believe the deal makes sense by adding geographic diversity and, importantly, adding growth (and return enhancement) opportunities in the key retail and midstream segments," Jenkins noted. "We project accretion from today's deal in 2019 of nearly 9%."

Marathon has a history of creating value by "improving refining returns, growing the higher-value Speedway segment and unlocking value at MPLX," its master-limited partnership, Jenkins said. "We think this only continues with the addition of Andeavor's asset base."

Also in the research note, Jenkins reviewed Marathon's Q1/18 numbers, which were a miss but inconsequential to the Andeavor deal. Earnings per share was $0.08, below Raymond James and consensus' estimate of $0.15. The shortfall was mostly due to underperformance in the refining segment, which posted a $133 million ($133M) operating loss versus an expected $44M.

Raymond James remains bullish on its thesis for Marathon. For 2018 and beyond, "Marathon is set to benefit from synergy upside, a strengthened refining suite that sits well positioned for IMO 2020 and robust opportunities in both the higher value Speedway and midstream segments," Jenkins purported.

He reiterated his firm's Strong Buy rating and $90 per share target price on Marathon. The refiner's stock is currently trading at around $76.50 per share.

Want to read more Energy Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Disclosures from Raymond James, Marathon Petroleum Corp., Apr. 30, 2018


Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst's efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.

The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.

Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all companies under research coverage within the next three months.

Raymond James & Associates makes a market in shares of MPC.

Raymond James & Associates received non-investment banking securities-related compensation from MPC within the past 12 months.

Raymond James & Associates makes a market in shares of ANDV.

Raymond James & Associates received non-investment banking securities-related compensation from ANDV within the past 12 months.

Raymond James & Associates received non-securities-related compensation from ANDV within the past 12 months.

Want to read more about Oil & Gas - Exploration & Production investment ideas?
Get Our Streetwise Reports Newsletter Free and be the first to know!

A valid email address is required to subscribe