This top refiner has been on a nice roll, but it still trades well below highs posted in late 2015. Marathon Petroleum Corp. (NYSE: MPC) recently was added to the Franchise Picks List, and it 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.
The company announced in January its plans to significantly accelerate its dropdown of assets with an estimated $1.4 billion of master limited partnership eligible annual earnings before interest, taxes, depreciation and amortization being transferred to MPLX. The analysts noted in a report:
The company decided recently not to spin off its Speedway business which has 2,730 locations, spread across 21 states. In 2017, Marathon plans to invest $380 million into Speedway, by building new stores and remodeling others, the company’s officials have said.
Speedway also has seen success with its customer loyalty program as its had 5.7 million Speedy Rewards members last year. This has led to consistent growth in merchandise sales, which is key as the money made just from gasoline sales is minimal, experts have said.
Marathon shareholders receive a 3.1% dividend. Jefferies price target of $64 compares with the $63.12 consensus target. The stock was trading at $53.15 on Friday.
Royal Dutch Shell
This company has survived the plunge in oil pricing as good as or better than any other major integrated stock. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and NGLs.
Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.
In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, LNG for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.
The company generated 3.83 billion cubic feet per day of natural gas in the second quarter from its integrated gas operations and another 6.40 billion cubic feet per day from its upstream operations. The company posted solid results, and this was noted at the time:
Shell has organically covered the total cost of its dividend at $50 barrel over the last month – underlying free-cash-flow accretion from the BG Group plc takeover last year. With gearing down from 29% to 25% in the first half of 2017 already, the company remains on track to see gearing drop below 20% next year.
Investors receive a 5.78% dividend. The Jefferies price objective is $62.30, while the consensus price target is $62.99. The stock traded Friday morning at $56.75.
Four solid play for what may be a slow growth sector going forward. These companies are focused on free cash flow generation, and have continued to cut costs and unneeded capacity. In a pricey market, they make good sense for 2017 and the fact they are so out-of-favor makes them even more attractive.