Current MPC Stock Info

Reported first-quarter earnings of $1 million

Results include pretax charges of $0.06 per diluted share related to the impairment of goodwill and the valuation of inventories at the lower of cost or market

Completed major turnaround activity and refinery light crude upgrade project

Delivered strong earnings and cash flow from Speedway and Midstream segments

Returned $244 million to shareholders

MPLX announced a $1 billion private placement of convertible preferred securities with third-party investors


Analyst Commentary

From Raymond James

MPC: Tough 1Q; MPLX Funding Overhang Lifted, Aiding MPC Flexibility; MO2

Recommendation: As volatility continues to reign in the broader energy markets and within the margin environment for refiners, the relative "safe haven" status of refining stocks has eroded as refined product inventories have climbed. However, we remain of the view that global refined product demand will again be robust in 2016, bringing inventory levels lower and sending product cracks higher (to the benefit of refining stocks). For Marathon specifically, we remain constructive on the company's advantageous refining footprint (leverage to discounted medium/heavy barrels along with impressive logistics flexibility), as well as the substantial value-creating growth opportunities in the Midstream and Retail segments. While we recognize that MPLX's relative commodity sensitivity compared to its peers poses a near-term headwind, the partnership's funding "gap" has been eliminated for 2016 (and some of 2017) through yesterday's convertible preferred offering, leading to more financial flexibility at the Marathon level. As such, we maintain our positive rating on the shares of MPC given its leverage to our structurally bullish view on U.S. refining, and we reiterate our Outperform rating.
♦ 1Q16: EPS below views on tough Refining margins. Marathon posted adjusted 1Q16 EPS of $0.06 (excluding an inventory charge and goodwill impairment), below our estimate of $0.20 and consensus of $0.15. Lower-than-modeled Refining results drove the downside as segment operating income of $(62) million was below our estimate of $23 million. Specifically, lower Refining margins ($9.98/Bbl vs. our $11.25/Bbl estimate) were not quite offset by higher throughput (+3%) and lower operating costs. Speedway (Retail) posted operating income of $167 million, below our estimate of $183 million, while Midstream operating income offset the Retail segment downside. Our brief from this morning and page 2 of this note provides more detail on the quarter.
♦ MPLX convertible preferred offering lifts funding "overhang," enhancing Marathon financial flexibility: Following yesterday's $1 billion convertible preferred issuance (set to close early next month) at MPLX, management now expects the partnership to be able to cover all of its funding needs for 2016 and a portion of 2017. Importantly for Marathon, the partnership secured third-party investors for the funding (at an attractive cost of capital), thereby eliminating the need for Marathon to provide additional support to the partnership in 2016. With a high-graded capital budget (still $3 billion on a consolidated basis) and no need for additional MPLX support, we think increased shareholder returns (read: increased buyback activity) are likely in the balance of 2016, supporting investor sentiment in shares of MPC.
♦ Moderating 2Q and 2016 estimates, maintain 2017 numbers: After updating our operating and margin capture assumptions, we lower our 2016 Non-GAAP EPS estimate to $3.70 from $4.15. However, we maintain our 2017 EPS estimate of $3.50.
Valuation: Our $48 target price is based on our sum-of-the-parts valuation methodology outlined on page 3. Of note, our target price represents ~13x our 2016 EPS estimate.  

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