This top refiner rolled over after first-quarter 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, and its 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 strong revenue contribution from the assets acquired from Hess. Last year the company converted almost all the Hess stations to the company’s Speedway brand.
Marathon reported lousy first-quarter 2016 earnings, owing to weak crack spreads and increased turnaround facility activity. The company posted earnings per share that fell well short of the consensus estimates. Revenues topped estimates, but they were much lower than in the same period a year ago. Only 12.7% of funds own the stock.
Marathon shareholders are paid a 3.6% dividend. The $50 Merrill Lynch price target is right in line with the posted consensus target of $50.75. Shares closed trading Tuesday at $35.81.
This is another top energy company, and only 9% of funds own it now. Tesoro Corp. (NYSE: TSO) is an independent refiner and marketer of petroleum products. Through its subsidiaries, it operates six refineries in the western United States with a combined capacity of over 850,000 barrels per day, in addition to ownership in a logistics business that includes a 36% interest in Tesoro Logistics and ownership of its general partner. Tesoro’s retail-marketing system includes over 2,200 retail stations under the ARCO, Shell, Exxon, Mobil, USA Gasoline and Tesoro brands.
By 2017, the company expects about $1 billion of EBITDA from its logistics segment. The company plans to grow the segment by focusing on low-risk, accretive growth projects. While some on Wall Street say the easy money has been made in the refiner’s, Tesoro remains a top play, especially as the company widens business silos and opportunities
Tesoro investors are paid a 2.6% dividend. The Merrill Lynch price target is a whopping $116, and the consensus is $105.96. The stock closed Tuesday at $78.58 per share.
These neglected companies could be offering investors some serious upside potential, and the mere fact that they are under-loved by fund managers could be the ultimate contrarian indicator.