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Jefferies analysts upgraded shares of Marathon Petroleum (NYSE:MPC) to Buy from Hold, raising the firm’s price target on the stock to $157 from $134 on Friday.
The analysts told investors in a note that the rating is “driven by a step-up in margin capture to the high ~90%s from the prior avg of ~90%.” In addition, they said, “strong FCF generation, cash balance, and distributions from MPLX (NYSE:MPLX) give us confidence in MPC’s ability to return capital to shareholders through the cycle.”
Over the past 18 months, MPC has taken steps to improve its commercial performance, which includes improving its margin capture, argued the analysts.
“We expect MPC to consistently maintain a higher capture rate. Accordingly, we have updated our capture estimates from the low 90% to the high 90% range and to ~100% in 2025,” the analysts wrote.
Furthermore, they believe Marathon’s strong cash balance supports buybacks and operations.
“MPC ended ’22 with ~$11.8bn in cash and short-term investments. We see MPC requiring $1bn cash on hand plus $2bn distributions (and growing) from MPLX to fund its dividend and capital commitment for refining. In ’22, MPC returned ~75% of OCF (pre-WC) to shareholders through buybacks and dividends,” they explained.
“Assuming a similar cadence in ’23-’25, we see MPC generating cumulative OCF (pre-WC) of $35bn and repurchasing ~$23bn or ~38% of its market cap through 2025 (Ex-2). At these levels, MPC will be able to maintain a cash balance sufficiently above its minimum threshold.”
