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On Tuesday, TD Cowen’s analyst Jason Gabelman adjusted the price target for Marathon Petroleum (NYSE:MPC) shares, bringing it down to $142.00 from the previous $155.00 while maintaining a Buy rating on the stock. Currently trading at $123.90, InvestingPro analysis suggests the stock is undervalued, with analyst targets ranging from $135 to $183. Gabelman noted that despite the reduction, Marathon Petroleum remains their top pick and could present a better ownership opportunity once the market fully digests the first quarter of 2025 (1Q25) estimates. The analyst anticipates the first quarter to be the weakest for the company relative to other quarters.
The reduced valuation comes in the wake of lowered earnings expectations across the board due to decreased refining estimates for the year 2025. With a market capitalization of $38.6 billion and last twelve months EBITDA of $9.1 billion, Marathon Petroleum faces challenges ahead. Gabelman pointed out that among large-cap peers, Marathon Petroleum is expected to have the most downside to 1Q25 consensus EBITDA, influenced by factors such as elevated maintenance costs, historically lower first-quarter capture rates, and weaker margins in Chicago. This aligns with InvestingPro data showing 12 analysts recently revising their earnings expectations downward.
In the analysis, Gabelman included an assumption of throughput that is 80 thousand barrels per day (kbd) higher than the company’s guidance, aligning with recent performance, and a 50% probability of thermal cracking ( PTC (NASDAQ:PTC)) capture. He also projected that the company would repurchase $0.6 billion of its shares in the first quarter, utilizing the available $1 billion on its balance sheet while still retaining a comfortable capacity margin above their cash target levels.
Looking ahead, Gabelman expects stronger seasonal crack spreads in Chicago and reduced maintenance costs to bolster sequential earnings for the second quarter of 2025 (2Q25). With the next earnings report due on May 6, investors can access comprehensive analysis and 8 additional exclusive insights through InvestingPro’s detailed research report. Additionally, he expressed interest in Marathon Petroleum’s master limited partnership, MPLX (NYSE:MPLX), and its potential to acquire assets during the downturn, given its balance sheet capacity.
In other recent news, Marathon Petroleum Corp. reported fourth-quarter earnings that exceeded analyst expectations. The company posted adjusted earnings per share of $0.77, surpassing the consensus estimate of $0.62, with revenue reaching $33.47 billion, slightly above the expected $33.23 billion. Despite this, net income fell to $371 million from $1.5 billion in the same quarter last year, and adjusted EBITDA decreased to $2.1 billion from $3.6 billion.
In another development, Marathon Petroleum entered an underwriting agreement with financial institutions like Wells Fargo (NYSE:WFC) Securities and Citigroup (NYSE:C) Global Markets, as per a recent SEC filing. This agreement precedes the issuance of a Tenth Supplemental Indenture, which outlines the form of notes related to the underwriting arrangement. The specific terms, such as interest rates and maturity dates, were not disclosed.
Additionally, Mizuho (NYSE:MFG) Securities recently adjusted its price target for Marathon Petroleum from $174.00 to $168.00, maintaining a Neutral rating. This change comes amid expectations of first-quarter earnings potentially falling short of market estimates, with Mizuho forecasting a negative $0.34 EPS. The revision reflects broader trends in the refining industry and uncertainties in global economic growth.
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