Marathon Petroleum to Cut 12% Workforce as COVID-19 Bites; Analysts Optimistic on Stock Recovery

Marathon Petroleum, an American petroleum refining, marketing, and transportation company, said that it will slash 12% of its workforce as demand slowdown due to the COVID-19 pandemic has hurt business, sending its shares down about 0.3% on Wednesday.

Refiners and oil producers have been dismissing staff, slashing spending and reducing production to cope with weak prices and a global glut of fuel. U.S. gasoline futures are down 26% from a year ago and oil is trading down a third from where it had begun the year, Reuters reported.

In the second quarter, Marathon Petroleum reported net income of $9 million, or $0.01 per diluted share, worse than $1.1 billion, or $1.66 per diluted share, for the second quarter of 2019.

The U.S. oil refiner will announce third-quarter 2020 financial results on November 2. According to IBES data from Refinitiv, the company will post a $623 million loss in the third quarter.

Marathon Petroleum’s shares closed 0.3% lower at $29.34 on Wednesday; the stock is also down about 50% so far this year.

Marathon Petroleum stock forecast

Fourteen analysts forecast the average price in 12 months at $44.42 with a high forecast of $66.00 and a low forecast of $30.00. The average price target represents a 51.40% increase from the last price of $29.34. From those 14, ten analysts rated ‘Buy’, four analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $50 with a high of $60 under a bull scenario and $28 under the worst-case scenario. Wells Fargo lowered their price target to $42 from $51; Goldman Sachs cuts target price to $40 from $42; Citigroup cuts price target to $30 from $38; RBC lowered the target price to $40 from $44 and Simmons Energy cuts target price to $45 from $46.

Several other equity analysts have also updated their stock outlook. Credit Suisse Group boosted their target price on shares of Marathon Petroleum to $41 from $38 and gave the stock an “outperform” rating in May. Scotiabank dropped their target price to $48 from $51 and set a “sector outperform” rating in July. Royal Bank of Canada reiterated a “buy” rating and issued a $40.00 target price.

Analyst comment

“Marathon Petroleum Corporation (MPC) offers multiple ways to win. We expect MPC to benefit from the overall decline in crude prices, although we caution refined product demand risk could weigh on valuation. We prefer MPC as a large, diversified refiner to weather the current environment,” said Benny Wong, equity analyst at Morgan Stanley.

“We see a SoTP upside to ~$52/shr. Our SoTP is as follows: we assign $21/shr to midstream and $27/shr to refining. Adjusted for assets/liabilities, net debt, and synergies, our SoTP suggests a ~$52/shr valuation (>43% upside),” he added.

Upside and Downside Risks

Upside: 1) Oil prices stay depressed or decline further. 2) Successful spin-off of Speedway retail fuel business. 3) Potential separation of MPLX and conversion to a C-Corp. 4) Material widening of sweet-sour differentials, highlighted by Morgan Stanley.

Downside: 1) Demand risk. 2) Sweet-sour differentials narrow materially.