Marathon Petroleum Earnings: No Change to Competitive Position, but Shares Look Expensive

Key Morningstar Metrics for Marathon Petroleum

• Fair Value Estimate: $142.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of Marathon Petroleum’s Earnings

Marathon Petroleum’s MPC first-quarter 2024 earnings fell to $937 million from $2.7 billion a year ago, surpassing market expectations. Refining and marketing operating income fell to $766 million from $3.0 billion the year before on weaker realized refining margins, which fell to $18.99/barrel from $26.15/bbl. Historically high turnaround activity weighed on utilization, which was only 82%, but capture rates remained robust at 92%, albeit below management’s target to consistently deliver 100% capture.

Costs crept up to $6.14/bbl from $5.68/bbl last year on the lower throughput. Nothing in the quarter suggests Marathon’s past commercial and cost improvements have regressed, and we expect key operating metrics to improve in the next quarter as it moves past turnaround activity.

Marathon continued to return capital to shareholders during the quarter, with $2.2 billion of repurchases, slightly lower than the fourth quarter’s $2.5 billion. The board increased the repurchase authorization by another $5 billion, leaving $8.8 billion remaining on authorizations, about 13% of the current market cap. Since May 2021, management has reduced the share count by 50% through repurchases and said it will continue doing so.

We are not changing our fair value estimate, which is anchored on an assumption of an eventual return to midcycle conditions, though exactly when is unclear. Shares look expensive, even after a post-earnings selloff.

As management reiterated, the outlook for the refining market remains robust, with strong demand and limited capacity additions, which could prolong the market’s strength. However, if it doesn’t, shares could retreat meaningfully on weaker margins. In the meantime, we maintain a positive view of Marathon’s competitive position, especially given its past operational improvements and continued return of capital to shareholders.