Analyst Note| Allen Good, CFA |
Marathon Petroleum's earnings staged a strong rebound during the second quarter thanks to improved refining market conditions. Adjusted earnings swung to $437 million from a loss of $868 million last year thanks to improved refining segment earnings. Adjusted earnings exclude a $11.6 billion pretax benefit from the close of the Speedway sale during the quarter, which delivered aftertax proceeds of $17.2 billion. Using these proceeds, Marathon has already reduced debt by $2.5 billion and repurchased $1 billion in shares. It still has $9 billion to deploy to repurchases, which it will do in the open market in the next 12-16 months. As of today, that amounts to 25% of its $36 billion market capitalization, which includes its $18 billion stake in MPLX. Our fair value estimate and no-moat rating are unchanged, leaving the shares modestly undervalued. However, the magnitude of the buyback should support further price appreciation even as Marathon has outperformed peers year to date.