Source: Streetwise Reports 05/07/2018
Raymond James reported on the recently announced proposed deal.
An April 30, 2018, research note issued by Raymond James indicated that Marathon Petroleum Corp. (MPC:NYSE) has agreed to merge with Andeavor (ANDV:NYSE). “The combined entity will possess 3-plus million barrels per day of refining capacity, making it the largest domestic refiner, with a diverse and expansive footprint,” wrote analyst Justin Jenkins. Marathon’s management estimates about $1 billion ($1B) worth of run rate synergies will be achieved within three years of the transaction’s closing, slated for H2/18.
Under the agreement terms, “Andeavor shareholders will receive either 1.87 shares of Marathon for each Andeavor share or $152.27 per share subject to a maximum 15% cash component (~$3.5B),” explained Jenkins.
Raymond James views the proposed merger as positive. “Strategically, we believe the deal makes sense by adding geographic diversity and, importantly, adding growth (and return enhancement) opportunities in the key retail and midstream segments,” Jenkins noted. “We project accretion from today’s deal in 2019 of nearly 9%.”
Marathon has a history of creating value by “improving refining returns, growing the higher-value Speedway segment and unlocking value at MPLX,” its master-limited partnership, Jenkins said. “We think this only continues with the addition of Andeavor’s asset base.”
Also in the research note, Jenkins reviewed Marathon’s Q1/18 numbers, which were a miss but inconsequential to the Andeavor deal. Earnings per share was $0.08, below Raymond James and consensus’ estimate of $0.15. The shortfall was mostly due to underperformance in the refining segment, which posted a $133 million ($133M) operating loss versus an expected $44M.
Raymond James remains bullish on its thesis for Marathon. For 2018 and beyond, “Marathon is set to benefit from synergy upside, a strengthened refining suite that sits well positioned for IMO 2020 and robust opportunities in both the higher value Speedway and midstream segments,” Jenkins purported.
He reiterated his firm’s Strong Buy rating and $90 per share target price on Marathon. The refiner’s stock is currently trading at around $76.50 per share.
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Disclosures from Raymond James, Marathon Petroleum Corp., Apr. 30, 2018
ANALYST INFORMATION
Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst’s efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.
The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all companies under research coverage within the next three months.
Raymond James & Associates makes a market in shares of MPC.
Raymond James & Associates received non-investment banking securities-related compensation from MPC within the past 12 months.
Raymond James & Associates makes a market in shares of ANDV.
Raymond James & Associates received non-investment banking securities-related compensation from ANDV within the past 12 months.
Raymond James & Associates received non-securities-related compensation from ANDV within the past 12 months.
( Companies Mentioned: MPC:NYSE,
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