Texas Oil & Gas Firm Positioned for Faster Growth with Potential Upside

Raymond James provided a general outlook on this company post-merger and pre-Investor Day.

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In a Nov. 20 research note, analyst Justin Jenkins observed that with the Andeavor acquisition behind it, Marathon Petroleum Corp. (MPC:NYSE) is "uniquely positioned to continue optimizing its now industry-leading refining position while creating even faster growth in the higher-value Midstream and Retail segments."

Jenkins explained that Marathon should benefit from upside related to merger synergies and "a strengthened refining suite that is well positioned for wide crude differentials and IMO 2020," referring to the International Maritime Organization's 0.5% global sulphur cap on marine fuels effective Jan. 1, 2020. Further upside should result from "robust opportunities" in the Speedway and Midstream segments.

At the same time, headwinds, specifically current weak gasoline margins, are expected.

Jenkins relayed what Raymond James expects Marathon to provide on its Investor Day and what it would like Marathon to provide on Investor Day. The former are:

  1. An update and overview of synergies and growth targets resulting from the Andeavor merger. Jenkins noted the estimated synergies target could be higher than the previously discussed $1 billion.
  2. Further details on the current refining market and margins outlook and expectations regarding IMO 2020.
  3. Updated guidance for Q4/18 and 2019 operations and reporting outlook.
  4. Capital allocation plans.

"If new guidance figures and capital allocation outlook are well received, a bounce in shares could be due," Jenkins asserted.

A detailed explanation of Marathon's free cash flow profile would be helpful to investors, Jenkins wrote, because the company's reporting structure is complex and numerous changes have resulted from the Andeavor acquisition.

Raymond James maintains its Strong Buy rating and its $106 per share target price on Marathon, whose share price today is around $65.95.


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