Jefferies Adds Big Dividend-Paying Leader to Franchise Picks List

Print Email

As we head deeper into February, many of the top firms we cover here at 24/7 Wall St. are tweaking their high-conviction stock lists for 2017, and many are trying to take into account macro changes that could make a difference this year. Those changes could include higher inflation, a stronger dollar and rising interest rates. They are also trying to factor in positives like lower nominal tax rates and less of the ever burdensome regulations that some feel have stifled business.

In a new research report, Jefferies has made a third big change for 2017. The analysts add a leading energy stock, Marathon Petroleum Corp. (NYSE: MPC), to the Franchise Picks list.

This top refiner has been on a roll since bottoming last February, but its shares still trade well below highs posted in late 2015. Marathon Petroleum has a diversified business that operates through Refining & Marketing, Speedway and Pipeline Transportation segments. The company owns and operates seven refineries in the Gulf Coast and Midwest regions of the United States, which refine crude oil and other feedstocks, and it distributes refined products through barges, terminals and trucks, as well as purchases ethanol and refined products for resale.

While acknowledging that the company’s margins may have compressed some, many on Wall Street also expect continued strong revenue contribution from the assets acquired from Hess, and the company has converted almost all the Hess stations to Marathon’s Speedway brand.

The company announced in January plans to significantly accelerate its drop-down of assets with an estimated $1.4 billion of master limited partnership eligible annual earnings before interest, taxes, depreciation and amortization (EBITDA) to MPLX. This is expected to be completed as soon as possible, subject to requisite approvals and regulatory clearances, including tax.

The analyst noted in the report:

Following the dropdown and IDR roll-in, management notes the midstream component of the company is now worth ~$40-$50/sh (~94% of current value), implying just $3 per share for its’ Speedway and Refining business today. If the shares continue to trade at current levels (despite the positive impact a Speedway separation may have on the company’s credit & cash-flow stability), it would be difficult for management to justify a ‘no-separation’ scenario.

Marathon Petroleum investors are paid a solid 3% dividend. The Jefferies price target for the stock is $60, and the Wall Street consensus price objective is $61.97. The stock closed Thursday at $47.90.

We also screened the Franchise Picks portfolio for the top dividend-paying stocks and found three that look like outstanding stocks to pick up now.

AbbVie

This is one of the top global pharmaceutical stocks picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries.

One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which generated $14 billion in sales in fiscal 2015. That was the most any drug has recorded during a single year and represents a gigantic part of the company’s overall earnings. The problem is that biosimilars and generics are itching to enter the market with Amgen leading the charge, and some Wall Street analysts project that AbbVie may have a difficult time stopping that trend.

Last May, the patent board instituted Coherus BioSciences’ Inter Partes Review against the Humira ‘135 patent. The outcome of the review is expected next year. While most analysts remain positive on Humira duration, the expected litigation uncertainty could continue to create an overhang on the stock, which does give investors chances to pick up shares lower.

AbbVie investors receive a 4.2% dividend. The $90 Jefferies price target is well above the consensus target of $70.11. Shares closed Thursday at $60.89.