An Oil Play in Times of Uncertainty? My thoughts for the week - 2023/01/25
Deep-dive technical and fundamental analysis of Marathon Petroleum Crop. (NYSE:MPC)
Hello and welcome to another issue of 🕵 The Seeker 🕵
"Seek the truth, and the truth will set you free." - John 8:32
A quick reflection on my previous article about Google GOOG 0.00%↑ . The price is up around 7% trading at about 99.52$ at the time of writing this article. I still think there is an upside potential of about 10% more, up until 110$. I will hold this week and I will be looking to exit early next week as the Tech Earnings season started and the company is reporting on the 2nd of February.
Thoughts on the overall market
The market pushed up to the trendline again around 4000. However, it seems like the bull initiative is not strong enough plus the fundamentals haven’t changed much. The profit margins have eroded driven by inflation and the continuing rise in interest rates.
In my opinion: the geopolitical situation will influence the market for sure, as the new military support for Ukraine comes in. The effect can be a continuation of the bear market possibly forming a new low.
What to expect in the coming week
Wednesday, Jan 25th:
Canada- Rate Decision
Tesla TSLA 0.00%↑ Earnings
Abbott Labs ABT 0.00%↑ Earnings
IBM IBM 0.00%↑ Earnings
Thursday, Jan 26th:
US - Core PCE ( Very Important - Can cause big price movements)
US - 4Q GDP, New Home Sales, Initial Jobless Claims
Japan - PPI
Friday, Jan 27th
US - Personal Income/Spending
Chevron CVX 0.00%↑ Earnings
American Express AXP 0.00%↑ Earnings
Today’s Stock Pick
My pick today goes to Marathon Petroleum Corporation MPC 0.00%↑ .
Marathon Petroleum Corp. (NYSE:MPC) is an integrated downstream energy corporation that operates in the United States, it operates in two segments, Refining and Marketing; and Midstream. The company refines crude oil and other feedstocks at its refineries and transports, stores, distributes, and markets crude oil and refined products.
Macros
Energy Select Sector SPDR ETF ( XLE 0.00%↑ ) has seen a 39.2% return over the past year outpacing the broader S&P 500 index. Energy stocks have performed well in 2022, due to rising oil and gas prices driven by the Russia-Ukraine war. According to the CPI report of December 2022, the energy index rose 7.3% over the past 12 months, with the fuel oil index rising 41.5% and the index for natural gas increasing 19.3% over the same period.
Forecasts
Goldman Sachs GS 0.00%↑ forecasts Brent crude to trade at $105 per barrel by Q4 2023 due to solid global oil demand growth, and OPEC's pricing power is expected to limit downside risks to this bullish forecast.
Demand for natural gas is also on the rise, according to Allied Market Research the global natural gas market is projected to grow at a CAGR of 3.4% to $424.70 trillion by 2031.
Technical Analysis
Since the beginning of July, the stock is in an exponential Zig-Zag Pattern. The price is forming higher highs and higher lows with each upward movement bigger than the previous and the following retracement smaller than the previous. The price bounced from the trendline and crossed above the 50-Day Moving average. In addition to that, the RSI and MACD indicators are signaling a continuing momentum.
My opinion: The Trend Is Your Friend!
The trend will keep pushing the price higher, following the previous two moves I believe an additional upward move of about 20% aiming at the 150$ is on the table.
Fundamentals
It is important to note that MPC is currently trading at a forward non-GAAP P/E of 4.75x, which is 41.6% lower than the industry average of 8.14x, and a forward EV/EBITDA multiple of 3.46, which is 37% lower than the industry average of 5.48. Suggesting that the stock may be undervalued relative to its peers.
In terms of financial performance, MPC had a strong third quarter of fiscal 2022, with total revenue and other income increasing 44.8% YoY to $47.24 billion, and income from continuing operations, net of tax, growing 387.4% from the year-ago value to $5.02 billion. Additionally, the company's adjusted EBITDA from continuing operations rose 182.9% from the prior year’s period to $6.83 billion, and adjusted net income attributable to MPC increased 731.3% year-over-year to $3.86 billion.
MPC also has a healthy dividend, paying a $3 per share annual dividend, which translates to a 2.46% yield on the current price level. The company's dividend payouts have grown at a CAGR of 10.4% over the past five years, and its four-year average dividend yield is 4.14%.
Looking forward: Analysts expect MPC's revenue to increase 47.2% year-over-year to $178.05 billion for the fiscal year ending December 2022, and EPS for the same year is expected to grow 945.6% from the previous year to $25.62. Furthermore, MPC has surpassed its consensus EPS in all four trailing quarters, indicating a strong financial performance.
Overall: I think MPC stock is undervalued considering its strong financial performance and healthy dividend yield.
One Risk Factor can be the upcoming earnings report on the 31st of January, and should definitely be something to watch out for.
Industry Analysis
For the industry analysis, I have selected the First Trust Nasdaq Oil & Gas ETF FTXN 0.00%↑ ETF, and I as well compare it to SPY 0.00%↑.
Both the industry and Marathon Petroleum have outperformed the S&P500 heavily. I expect that trend to continue in 2023 as well.
The 50-Day WMA Breadth analysis also shows a strong industry performance at the moment, having 77% of the ETF constituents trading above their moving average. The last time that it was on this level was around late September and it was followed by a 30% upward rally for FTXN.
Final thoughts
The oil and gas sector is projected to rise in the coming year driven by China's reopening and much less reliance on Russia as an oil exporter.
Marathon Petroleum has a strong position in the industry, doesn’t hold much debt, and has a healthy cost structure. I believe the company is poised to perform well in the coming year. The one thing to watch is the coming earnings report + the earnings call transcript, as this will give us plenty of information on how the company performed in the last quarter of 2022 and what is on the horizon for 2023.
Well, that’s all from me for this one. As always, I would love to hear your thoughts in the comment section below.
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🙋♂️ Cheers! 🙋♂️
Disclaimer: Please note that the information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. The information provided should not be relied upon as a substitute for financial, legal, or professional advice. Before making any decision, it is important to consider all relevant information and consult with a professional who can provide personalized advice based on your specific circumstances. The author and publisher of this article cannot be held liable for any actions taken based on the information provided. This is not a recommendation to buy or sell any specific securities or financial instruments.
MPC’s Dividend 2022 Total Amount $2,49, Yield 2,30%