Marathon Petroleum May Continue to Generate Strong Profits (NYSE:MPC)

Marathon Petroleum Corporation (NYSE:MPC) is one of the world’s largest oil refining and marketing companies with a market capitalization of nearly $60 billion. The company faces strong volatility in its core business, but has the ability to drive considerable returns for shareholders, making it a valuable investment opportunity.

Marathon Petroleum Business

The company continued to do well with its businesses.

The company is building a strong, advanced midstream business with adjusted EBITDA of $1.6 billion with single-digit annual growth. The company received a quarterly distribution of $550 million from MPLX LP (MPLX), which reflects its 64% ownership of a more than $40 billion midstream company (nearly 50% of MPC’s market cap).

The company was able to return a massive $3.2 billion in capital to shareholders, showing its financial strength and ability to generate future returns.

Marathon Petroleum Net Income

The company continued to generate strong EBITDA with quarterly growth from a strong business.

Refineries are not a popular business right now, and the company maintains a strong long-term market position supported by mid-cap assets. EBITDA increased 0.3% QoQ and the company continued to maintain strong investment in its business with net income of $1.5 billion. This is a level of profit that can continue to generate substantial returns for shareholders.

Marathon Petroleum Cash Flow

The company continued to generate strong quarterly cash flow.

The company recorded $2.7 billion in CFFO along with modest capital expenditures resulting in FCF of ~$2.2 billion. That puts the company at a dividend yield of nearly 15%. The company’s debt is up nearly $1.6 billion, but it’s on par with MPLX. The company can comfortably afford returns to shareholders with $290 million in dividends, a yield of nearly 2%.

At the same time, the company managed to increase its cash position, despite a substantial commitment to shareholder returns, with nearly $2.9 billion in share buybacks. The company has been able to reduce its number of shares outstanding by nearly 50% since mid-2021, and we expect it to continue to do so aggressively.

Marathon Petroleum Outlook

The company’s outlook is to continue to generate substantial returns for shareholders.

The company expects significant utilization of its assets, which are critical to achieving strong returns. Given that assets are fixed, the higher the company’s utilization, the better the company can allocate fixed costs and generate returns for shareholders. The company expects about 2.6 million barrels/day in production, with an operating cost of $5.35/barrel.

The company’s distribution costs come to ~$6.5/bbl. The company continues to build a strong business and with strong demand for refined assets, we expect the company to be able to generate strong cash flow with these assets. Crack spreads remain relatively strong, which will support continued returns.

The thesis risk

The biggest risk to our thesis is long-term volumes. The company operates in midstream and refining, and volumes are expected to remain strong through the end of the decade. However, there are still concerns about the long-term potential of markets after that and demand. This could affect the company’s ability to generate long-term returns for shareholders.

Conclusion

Marathon Petroleum has an impressive portfolio of assets. The company’s assets are hard to replace, and a strong midstream segment through MPLX shows the company’s portfolio values ​​and continues to support important cash flow for the company. The company uses this cash flow to be able to generate substantial returns for shareholders.

Marathon Petroleum Corporation paid a modest dividend of nearly 2% and continues to aggressively buy back shares. The company has been able to reduce its outstanding shares by 50% in just a few years and continues to invest in its portfolio. MPLX offers strong underlying cash flow and the company is a valuable long-term investment.