Marathon Petroleum Corp (MPC), and 3 Compelling Reasons to Buy This Oil Company

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With the recent rally across the world indices, it has become increasingly difficult to find value plays. Although it may be difficult, it’s not impossible. Shares of Marathon Petroleum Corp (NYSE:MPC) have risen by nearly 130% since the company’s IPO in 2011, and the stock still looks attractive. As a matter of fact, I think it’s one of the best value plays out there. Here are a few reasons to support the claim.

A key acquisition

Last month, Marathon Petroleum purchased BP plc (ADR) (NYSE:BP)‘s Texas City, TX refinery for around $2.4 billion. The deal values its hydrocarbon inventory at $1.1 billion, while only $600 million is to be paid in cash. The remaining $700 million will be collected through refinery margins over the coming years, which effectively lowers the cost of capital for Marathon Petroleum Corp (NYSE:MPC). This makes the profitability of the refinery almost equally essential to BP plc (ADR) (NYSE:BP).

BP has sold over $50 billion worth of its non-core assets over the last couple of years in order to focus on high margin oil production. The massive asset sales suggests that BP plc (ADR) (NYSE:BP) has sold the Texas refinery out of deliberation and not desperation, which further reduces the odds that the Texas refinery could be problematic in the future.

The Texas City refinery is the third-largest refinery in the U.S, and produces 3% of the country’s total petroleum demand. It has a daily production capacity of 475,000 barrels per day, which boosts Marathon Petroleum Corp (NYSE:MPC)’s production capacity by 28%. This leaves ample growth potential for Marathon Petroleum, and allows it to meet rising refining demand without experiencing a need to expand in the coming years.

Investor’s delight

Over the last year, Marathon Petroleum has returned approximately $1.8 billion to its shareholders in the form of share repurchases and dividend payouts. Its board recently authorized another $2 billion for stock buybacks, which leaves about $2.7 billion in pending capital under the share buyback program. At the current stock price, this aggregates to a repurchase of 8.9% of the total outstanding shares, which should boost its current yield of about 1.6% to 1.7%.

When there is not much room to grow, companies often initiate buyback programs to artificially boost their earnings per share. But shares of Marathon Petroleum Corp (NYSE:MPC) have risen by over 110% over the last year, and the current buyback only underscores its board members’ faith and confidence in the company’s future.

Marathon Petroleum has also hiked its dividend payouts aggressively. Since its listing in 2011, it has boosted dividends by 75%. But with a modest yield of approximately 1.6% and a meager payout of 12%, I don’t think its dividend sustainability should be a cause for concern.

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