Marathon Petroleum Shuts Refinery Unit - Analyst Blog

A storm-caused power outage forced Ohio-based independent oil refiner and marketer Marathon Petroleum Corp. MPC to partially shut its Garyville, Louisiana plant. Following the inclement weather and the resultant electricity knockout in the region early on May 28, the company shuttered one of the two crude units at the 522,000 barrels-per-day (bpd) refinery – the nation's third-largest.  

While Marathon Petroleum continues to take stalk of the damage to the site's cooling water tower and no time frame has yet been revealed, initial reports suggest that the unit will take at least two months to resume operations. However, the facility's other unit continues to function.

Marathon Petroleum – whose Speedway LLC unit recently agreed to acquire the retail arm of integrated energy firm Hess Corp. HES for about $2.87 billion – is known for its scale advantage, impressive asset quality and extensive midstream/retail network. A major advantage for the company is its proprietary access to pipelines, which inhibits lower-cost competitors from supplying Marathon Petroleum's key markets. Management's steady dividend increases, ongoing share repurchase program and recent acquisition of BP plc's BP Texas City refinery could further boost shareholder value.

However, the current valuation seems fair and adequately reflects the company's future growth prospects. Moreover, Marathon's core business – refining – is faced with a high degree of volatility, while being capital intensive. This is expected to limit its ability to generate positive earnings surprises.

As a result, Marathon Petroleum currently retains a Zacks Rank #3 (Hold), implying that it is expected perform in line with the broader U.S. equity market over the next one to three months.

However, a better bet in the downstream energy space would be CVR Refining L.P. CVRR. It holds a Zacks Rank #1 (Strong Buy).

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