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

Page 1 of 2

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.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!