JPMorgan (NYSE:JPM) has adjusted its price target for Marathon Petroleum (NYSE: NYSE:MPC) shares, reducing it marginally from $172.00 to $171.00 while keeping a Neutral stance on the stock. The revision follows a decrease in the firm's third-quarter earnings per share (EPS) estimate, which has been set at $0.90, down from the initial $2.00 prediction. This figure is slightly below the consensus estimate of $2.02.
The reduction in the price target and EPS estimate is attributed to lower refining captures than previously modeled. JPMorgan anticipates that Marathon Petroleum's third-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) for refining will be approximately $432 million, a significant drop from the second quarter's $1.789 billion. When excluding turnaround activities (ex-TAR), the EBITDA is expected to be $762 million, compared to $1.971 billion in the previous quarter. This decline is due to reduced throughputs and a lower benchmark indicator, with gross margins estimated at $14.07 per barrel, down from $17.37 per barrel in the second quarter.
The expected capture rate for Marathon Petroleum remains nearly unchanged quarter-over-quarter at approximately 94% on the MPC indicator. This consistency is seen despite lower jet fuel cracks, which are essentially balanced out by secondary product tailwinds resulting from a decrease in prices. The operational expenses are projected to be $5.34 per barrel, which aligns with the company's guidance.
In terms of throughput, JPMorgan forecasts crude throughput at around 2,647 thousand barrels per day (kbpd) and total throughput at 2,847 kbpd, both consistent with guidance. The midstream segment is expected to maintain its performance, with an EBITDA forecast of $1.620 billion, mirroring the second quarter's results.
In other recent news, Marathon is experiencing a prolonged strike at its Detroit refinery, with negotiations between the company and the Teamsters union remaining unresolved. The strike, initiated by over 200 Teamsters, may potentially expand to other Marathon facilities. The Detroit refinery, which processes 140,000 barrels per day, is one of Marathon's 13 refineries.
Additionally, Marathon Petroleum has been maintaining a neutral stance on cost reduction, with Piper Sandler maintaining a Neutral rating on the company's shares. The firm highlighted Marathon's shift from focusing on cost reduction to becoming cost competitive, which is part of the company's effort to achieve a competitive edge. However, Marathon Petroleum, along with the sector, might face near-term margin pressures.
TD Cowen recently raised Marathon's stock target to $190 from $187 following a significant earnings beat, driven by its refining operations and a robust share buyback program. The company generated adjusted earnings per share of $4.12 and returned $3.2 billion to shareholders. TD Cowen forecasts that Marathon Petroleum will maintain a peer-leading distribution yield through the fiscal year 2026.
Finally, during its recent earnings call, Marathon Petroleum projected strong demand for gasoline, diesel, and jet fuel, with limited global refining capacity additions anticipated to support an enhanced mid-cycle environment for refining. The company's midstream segment, MPLX (NYSE:MPLX), is executing growth opportunities and increasing cash flows.
InvestingPro Insights
To complement JPMorgan's analysis, recent data from InvestingPro offers additional context on Marathon Petroleum's financial position. The company's P/E ratio stands at 8.27, indicating that the stock may be undervalued relative to its earnings. This aligns with JPMorgan's neutral stance, suggesting potential value for investors despite the lowered price target.
InvestingPro Tips highlight that Marathon Petroleum has been aggressively buying back shares, which supports JPMorgan's projection of $2.0 billion in share repurchases for the third quarter. This strategy often signals management's confidence in the company's financial health and can potentially boost earnings per share.
Additionally, Marathon Petroleum boasts a high shareholder yield, which could be attractive to investors seeking returns through dividends and buybacks. The company has maintained dividend payments for 14 consecutive years, demonstrating a commitment to shareholder returns even in challenging market conditions.
It's worth noting that InvestingPro offers 11 additional tips for Marathon Petroleum, providing a more comprehensive analysis for investors considering the stock's potential in light of JPMorgan's revised outlook.
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