Marathon Petroleum (MPC) Up 18.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Marathon Petroleum (MPC). Shares have added about 18.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Marathon Petroleum due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Marathon Petroleum Posts Narrower-Than-Expected Q4 Loss

Independent oil refiner and marketer Marathon Petroleum reported adjusted loss of 94 cents per share, narrower than the Zacks Consensus Estimate of a loss of $1.42. The company’s bottom line was favourably impacted by cost savings and stronger-than-expected performance from the Midstream segment. Precisely, operating income from the unit totaled $974 million, ahead of the Zacks Consensus Estimates of $964 million.

However, the bottom line compared unfavorably the year-earlier quarter's earnings of $1.56 due to sharply lower refining margins.

Marathon Petroleum reported revenues of $18.2 billion that beat the Zacks Consensus Estimate of $16.7 billion but declined 35.4% year over year.

Forced by the historic oil market crash and the coronavirus-induced demand destruction for the fuel, Marathon Petroleum more than halved its 2020 capital spending from year-ago levels to $3 billion.

Marathon Petroleum, which is progressing with the conversion of its Martinez petroleum refinery into a renewable diesel facility in response to the collapsing product demand, expects the sale of its Speedway business to Japanese retail group Seven & i Holdings to conclude by Mar 31, 2021. Further, the company expects to reach peak production at its Dickinson renewable fuels facility during the same timeframe.

Y/Y Segmental Performance

Refining & Marketing: The Refining & Marketing segment reported operating loss of $1.6 million, as against income of $1.1 billion in the year-ago quarter. The deterioration reflects lower y/y margins.

Specifically, refining margin of $7.42 per barrel decreased significantly versus $16.35 a year ago. Total refined product sales volumes were 3,223 thousand barrels per day (mbpd), down from the 3,750 mbpd in the year-ago quarter. Moreover, throughput fell from 3,069 mbpd in the year-ago quarter to 2,528 mbpd though it beat the Zacks Consensus Estimate of 2,460 mbpd. Capacity utilization during the quarter was down 12% year over year to 82%.

Midstream: This unit mainly reflects Marathon Petroleum’s general partner and majority limited partner interests in MPLX LP – a publicly traded master limited partnerships that own, operate, develop and acquire pipelines and other midstream assets.

Segment profitability was $974 million, 9.6% higher than the fourth quarter of 2019. Earnings were supported by stable, fee-based revenues, lower operating expenses, plus contribution from organic growth projects.

Costs, Capex & Balance Sheet

Marathon Petroleum reported expenses of $17.8 billion in fourth-quarter 2020, down 35.5% from the year-ago quarter.

In the reported quarter, Marathon Petroleum spent $491 million on capital programs (36% on Refining & Marketing and 41% on the Midstream segment) compared to $1.8 billion in the year-ago period. As of Dec 31, the company had cash and cash equivalents of $555 million and a total debt, including that of MPLX, of $31.7 billion, with a debt-to-capitalization ratio of 52.1%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 24.84% due to these changes.

VGM Scores

Currently, Marathon Petroleum has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Marathon Petroleum has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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