Morningstar

Marathon Earnings: Another Quarter of Execution Delivers Stronger-Than-Expected Results

We expect strong margins to continue even when the Strait of Hormuz opens, but likely not at current levels.

Marathon logo seen at a petrol station.
Stephen Zenner/SOPA Images via Getty
Securities in This Article
Marathon Petroleum Corp
(MPC)

Key Morningstar Metrics for Marathon Petroleum

  • Fair Value Estimate
    : $186.00
  • Morningstar Rating
    : ★★
  • Morningstar Economic Moat Rating
    : Narrow
  • Morningstar Uncertainty Rating
    : Very High

What We Thought of Marathon Petroleum’s Earnings

Marathon Petroleum’s MPC first-quarter earnings far exceeded market expectations, as strong refining operations, including a 99% capture rate, enabled the company to capitalize on a favorable margin environment. It repurchased $750 million worth of shares during the quarter.

Why it matters: Quarterly results are becoming repetitive at this point, with Marathon continuing to deliver better-than-expected results by taking full advantage of a favorable margin environment through strong execution and the benefit of timely investments in Garyville’s jet fuel capacity.

  • During the quarter, it was a function of a high capture rate and a better-than-guided utilization rate (89% versus 85%), the result of commercialization and operational improvement efforts that have been underway for years.
  • Total shareholder distributions amounted to $1 billion during the quarter. The company authorized another $5 billion in repurchases, bringing its total outstanding to $8.6 billion at the end of the quarter.

The bottom line: Our fair value estimate of $186 for narrow-moat Marathon Petroleum leaves its shares overvalued. Our difference with the market lies in long-term expectations for refining margins. Higher margins for longer than futures indicate would result in us increasing our earnings expectations and fair value estimate.

  • The key question for all refiners is how long the current refining margin environment will last. We expect strong margins to continue even when the Strait of Hormuz opens, but likely not at current levels.
  • As such, we expect refiners to deliver strong earnings for the remainder of this year and into the next. This is already incorporated into our valuation, but we also assume an eventual return to midcycle conditions, which leaves shares overvalued in our view.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

Sponsor Center