Marathon Petroleum Earnings: An Early Look

With hundreds of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Let's turn to Marathon Petroleum (NYSE: MPC  ) . This midstream and downstream energy company, which Marathon Oil (NYSE: MRO  ) spun off in mid-2011, has nearly doubled since June 2012 as conditions in the oil markets have allowed the company to greatly boost its profits. But when favorable spreads come to an end, will the stock fall back to earth? Let's take an early look at what's been happening with Marathon Petroleum over the past quarter and what we're likely to see in its quarterly report on Wednesday.

Stats on Marathon Petroleum

Analyst EPS Estimate

$2.08

Year-Ago EPS

($0.21)

Revenue Estimate

$19.07 billion

Change from Year-Ago Revenue

(1.8%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo Finance.

Can Marathon Petroleum keeping pumping out gains?
On the analyst side, Marathon Petroleum has seen fourth-quarter estimates soar over the past three months, with a rise of $0.44 per share in that timeframe. The stock has also given investors strong performance, as shares are up 28% just since late October.

Marathon Petroleum had a mammoth run in 2012, thanks to the big spreads in prices of U.S. crude oil and refined products. With plentiful crude from shale plays throughout North America, Marathon was able to boost profits substantially, because prices for gasoline, heating oil, and other distillates are largely based on more expensive international markets. Moreover, its separation from Marathon Oil has freed it to get crude supplies from wherever it can get the best deal.

But Marathon Petroleum hasn't just relied on favorable market conditions. In October, it bought a Texas-based refinery from BP (NYSE: BP  ) for a total of about $2.5 billion, including $600 million in cash, $1.2 billion for inventories, and another $700 million in earnout payments over the next six years.

One interesting move Marathon Petroleum made during the quarter was to create and do an initial public offering of shares of a new master limited partnership, MPLX (NYSE: MPLX  ) , which owns a substantial portion of the company's midstream assets. With nearly 2,800 miles of pipelines as well as tank farms, butane storage, and a barge dock, the MLP will focus on Marathon Petroleum's midstream logistics business, which has close proximity to booming energy areas like the Marcellus and Utica shale plays. With Marathon owning refineries on the East Coast, these areas will be important sources of crude at potentially lower prices than would be available via imports.

With spreads between U.S. and international crude prices remaining fairly wide, expect more good results from Marathon Petroleum in its current report. But what you should look for are signs that Marathon is prepared to continue with innovative plays to stand out from its fellow midstream and downstream rivals. It will need to outperform its peers to justify its big share-price gains.

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