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Why Most Wall Street Analysts Rate MPC a ‘Buy?’

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The majority of analysts rate MPC a “buy”

Marathon Petroleum (MPC) is covered by 20 Wall Street analysts. The analyst rating chart below shows that 19 (or 95% of) analysts rated MPC a “buy” in June 2017. Only one analyst rated it a “hold.” Compared to June 2016, MPC’s ratings have strengthened with more “buy” ratings.

MPC’s mean price target of $63 per share implies around a 22% gain from the current level. Recently, J.P. Morgan has raised MPC’s target price from $57 per share to $64 per share.

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Analyst ratings of peers

MPC’s peers Phillips 66 (PSX), Valero Energy (VLO), and Tesoro (TSO) have been rated as “buy” by 30%, 50%, and 75% of analysts, respectively. Smaller players Delek US Holdings (DK), Alon USA Energy (ALJ), and HollyFrontier (HFC) have been rated as a “buy” by 40%, 11%, and 22% of analysts, respectively.

Why higher “buy” ratings for Marathon Petroleum?

Marathon Petroleum plans to restructure in order to unlock value. MPC has already started working on this project by executing dropdowns in 1Q17. In that quarter, MPC dropped down some pipelines, terminals, and storage assets to MPLX (MPLX) for $2 billion.

The restructuring plan broadly includes the dropdown of midstream assets to its master limited partnership, MPLX LP (MPLX), the exchange of its economic interest in GP and IDRs for new MPLX LP units, and the separation of the Speedway retail segment. To learn about IDRs, see IDRs: How Do They Impact MLPs? The Speedway separation evaluation is underway and likely to be completed in 3Q17. The exchange of IDRs and dropdowns of midstream assets is likely to be completed by 1Q18

The completion of the restructuring exercise will likely result in a steep upsurge in MPC’s valuation. No wonder the majority of analysts’ rate MPC a “buy.”

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