Clearly in the energy sector it has been a huge struggle for exploration and production stocks, as well as the oil services stocks. One area that has consistently outperformed this year is the refining stocks. Despite the big runs ups, the analysts at Deutsche Bank think that the third quarter’s earnings results will continue to be outstanding.
The Deutsche Bank team certainly acknowledges that the stocks have had a good move this year, and they note a multitude of near-term headwinds that could slow down the refining juggernaut and set up some profit taking. With all of that in mind, they note the still reasonable valuations, the flat crude pricing and strong gasoline demand as fundamentals that warrant continued stocks purchases.
Deutsche Bank has four stocks rated Buy, and two are the firm’s top picks now.
This top refiner rolled over some after earnings and may be offering an outstanding entry point. Marathon Petroleum Corp. (NYSE: MPC) 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 that refine crude oil and other feedstocks. It also 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 in the first half, many on Wall Street also expect strong revenue contribution from the assets acquired from Hess. In the most recent quarter, revenue was down 24% on a year-over-year basis to $20.6 billion, but net profit slid only 3% to $826 million. The company also raised the dividend a split-adjusted 30%.
Marathon shareholders are paid a 2.37% dividend. The Deutsche Bank price target for the stock is raised to $65 from $62. The Thomson/First Call consensus price target is higher at $68.07. Shares closed Wednesday at $54.50.