It’s not the news that left-leaning voters may want to hear. However, a political lifeline could help lift undervalued Marathon Petroleum stock (MPC) to higher ground. As a downstream hydrocarbon specialist (meaning that it focuses on the refining and marketing component of the energy value chain), Marathon has traversed tricky roads. However, a much more favorable ideological backdrop could swing the pendulum in favor of fossil fuels. Therefore, I am bullish on MPC stock.
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Financials Point to an Enticing Framework for MPC Stock
Before getting into the fundamental (that is, political) argument for MPC stock, it’s helpful to lay out the financial framework. Primarily, Marathon offers forward-thinking investors a potentially undervalued opportunity.
Right now, MPC stock trades hands at 0.44x trailing-year sales. In contrast, the downstream hydrocarbon industry runs an average revenue multiple of 0.54x. By that alone, Marathon looks intriguing for casual observers.
Also, it’s worth pointing out that MPC stock trades at 8.21x trailing-year earnings. On the other hand, the earnings multiple for the sector comes in at an average 12.74x. Again, that makes the hydrocarbon giant look like a compelling deal.
Of course, in order for an undervalued entity to be truly labeled as such, it must at some point rise; otherwise, it’s a value trap. It’s here that the situation gets wobbly. For Fiscal 2024, analysts project that earnings per share may land at $13.17. If so, that would imply a big drop of 44.27%. In the following year, EPS may move up to $14.66, which isn’t all that impressive.
Last year, Marathon posted earnings of $23.63 per share. On the top line, sales by year’s end may come in at $139.98 billion. That’s off by 6.9% from last year’s print of $150.31 billion. And revenue may erode again to $136.85 billion in 2025. That’s why MPC stock looks mathematically undervalued.
Historically, though, Republicans favor fossil fuels. Following President Joe Biden’s disastrous showing in the first presidential debate, conservatives enjoy political momentum. This is all the more relevant with Biden recently dropping out of the race. It wouldn’t be at all surprising for Republicans to clean up in this year’s election.
Again, that’s not news that Democrats want to hear. However, investors seeking upside opportunities may consider turning to the hydrocarbon industry. If Republicans take control, they will almost certainly support domestic fossil fuel infrastructure and businesses. That should give MPC stock a positive boost.
Therefore, it wouldn’t be outrageous to see the top end of analyst projections come true. If so, that would mean EPS of $18.10 in Fiscal 2024 and $19.35 in Fiscal 2025. For sales, investors may anticipate revenue of $153.21 billion by year’s end and $160 billion in the following year.
Especially for the sales component, that would make MPC stock incredibly undervalued. Assuming a share count of 352.33 million, that would make shares trade at 0.38x high-end 2024 sales.
Political Winds Favor Marathon Petroleum
Having established the potential undervalued nature of MPC stock, investors should consider the follow-up question: how realistic is it that Marathon will continue expanding its business? From a political standpoint, it appears the answer is very realistic.
Market participants only need to consider the words coming directly out of Republican candidate Donald Trump’s mouth. During his address at the Republican National Convention (RNC) held in Milwaukee, Bloomberg reported that the former president stated, “I will end the electric vehicle mandate on day one.”
Let’s be real – it doesn’t get clearer than that. It’s true that Trump goes on bombastic rants, and many of his talking points are incoherent. So, a certain element of risk exists in taking anything he says at face value. Still, when it comes to EVs, Trump has been consistent about his opinions on the topic.
Even before the RNC, Trump has taken aim at EVs – enough so that it raised concerns among climate advocates. Fundamentally, if Trump wins the November election, the transition to EVs may take a hit. For example, policies such as tax credits for buying certain electric-powered vehicles may come under question.
What’s more, a second Trump term could make gasoline prices cheaper through various initiatives and policy changes. That might seem to impact the profitability of downstream energy enterprises. However, such companies can potentially make up for the shortfall (and then some) through increased volume.
After all, a slowed transition to EVs would likely mean increased sales of combustion-based vehicles. Ultimately, this framework should be a net positive for MPC stock.
Is Marathon Petroleum Stock a Buy, According to Analysts?
Turning to Wall Street, MPC stock has a Strong Buy consensus rating based on nine Buys, three Holds, and zero Sell ratings. The average MPC stock price target is $202.91, implying 23.75% upside potential.
The Takeaway: A Red Wave Could Boost MPC Stock
Financially, downstream energy giant Marathon Petroleum appears to be undervalued. However, much of that narrative depends on whether upside projections by analysts hold true or not. That’s where the political race becomes intriguing. Right now, Republicans have momentum, and their favorable stance on hydrocarbons could be exactly what MPC stock needs.
