In a Jan. 29 research note, Raymond James analyst Justin Jenkins reported that Marathon Petroleum Corp.'s (MPC:NYSE) Q4/19 was a beat and its current "risk/reward still remains positive."
Jenkins reviewed the downstream energy company's "very strong Q4/19 performance" in which it "easily beat" consensus and Raymond James' earnings per share (EPS) estimates. Marathon's adjusted EPS came in at $1.56, versus forecasts of $0.80 and $0.85 by Raymond James and the Street, respectively. EBITDA was $3.2 billion, also above Raymond James' $2.2 billion projection.
With respect to Q4/19, the analyst explained that "the solid upside was driven by better all-in refining performance (margins/throughput/costs) coupled with some modest retail upside but partially offset by a slight miss in midstream and higher-than-modeled corporate costs."
Another positive that Jenkins pointed out is management guided to 2020 capex of about $4.35 billion, which is lower than the roughly $5 billion estimate of both Raymond James and consensus. Plus, Marathon expects capex to drop even more in 2021, "enough so that it expects to generate solid excess free cash flow."
Also of note, management continues to optimize high sulfur fuel oil between plants and import additional heavy sulfur fuel as feedstocks to fill its cokers, both in anticipation of the sulfur penalty it is likely to be hit with from IMO 2020. The company is benefiting, too, from exports of vacuum gas oil along the Gulf Coast, the analyst noted.
The energy firm intends to provide an update regarding its midstream strategic review and its CEO search by the end of Q1/20 and carry out the Speedway spinoff by early Q4/20.
Jenkins concluded, "We remain of the view that Marathon Petroleum can further optimize its industry-leading refining position while driving growth and value in the retail/midstream segments. While not without headwinds (e.g.,) macro volatility, Q1/20 maintenance, we believe the company is set to benefit from robust overall cash generation, while further optimization actions beget value creation."
Thus, Raymond James has a Strong Buy rating and $75 per share target price on Marathon Petroleum, whose current share price is about $55.02.[NLINSERT]
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Disclosures from Raymond James, Marathon Petroleum Corp., January 29, 2020
Analyst Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analyst Justin Jenkins, primarily responsible for the preparation of this research report, attest to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and that no part of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.
Raymond James & Associates received non-investment banking securities-related compensation from Marathon Petroleum Corporation within the past 12 months.v Raymond James & Associates, Inc. makes a market in the shares of Marathon Petroleum Corporation and MPLX L.P.
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