Damo is bullish on Marathon Crude Oil (MPC.US): Q3 performance exceeded expectations. The refining boom compounded midstream resilience, and the target price was raised to $458

The Zhitong Finance App learned that Morgan Stanley published a research report, maintained the “gain” rating of Marathon Crude Oil (MPC.US), and raised the target price from $453 to $458. According to the report, Marathon Crude Oil's performance for the third quarter of 2026 exceeded expectations, with abundant cash flow, increased shareholder returns, and announced the sale of two refineries and supporting midstream assets to CVR Energy (CVI.US) at a price of 4.2 billion US dollars. The return capital will focus on high-return projects along the Gulf Coast. The bank is optimistic about the resilience of its business portfolio and the cyclical climate in the refining industry.

According to the data, Marathon crude oil's adjusted earnings per share for the third quarter were $26.93, higher than the market's consensus forecast of $26.01 and Morgan Stanley's forecast of $26.56; the adjusted EBITDA reached US$11.7 billion, 7% higher than market expectations and 3% higher than the bank's expectations. By business, the refining sector's EBITDA was 9.9 billion US dollars, which also exceeded expectations. The core driver was the increase in refining and processing volume to 3.15 million barrels/day, up 5% from the previous estimate, and gross profit per unit processing was 45.70 US dollars/barrel, which was basically in line with market expectations; the midstream sector and the renewable diesel sector recorded EBITDA of 1.9 billion US dollars and 254 million US dollars respectively, which was 5% and 8% higher than the agreed forecast, which hedged the upward pressure on the company's headquarters management expenses.

At the level of cash flow, strong profitability and hematopoietic capacity drove Marathon crude oil's cash reserves to increase by about 5.5 billion US dollars month-on-month in a single quarter. The company implemented a total shareholder capital return plan of 3.3 billion US dollars, of which 3 billion US dollars was used for share repurchases, and announced a 10% increase in dividends. Regarding the operating guidelines for the fourth quarter, the company gave a refining and processing volume of 3.08 million barrels per day, which is 5% higher than the market's consensus forecast. The operating cost guideline is 5.60 US dollars/barrel, which is better than the market forecast of 2%. However, management suggested that the fourth quarter maintenance plan will focus on conversion installations along the Gulf Coast and the West Coast, which may slow down product yield; the renewable diesel business operating rate guidelines were lowered to 85%, and maintenance costs of 65 million US dollars are also expected.

According to this high-profile asset sale transaction, Marathon Crude Oil agreed to sell its St. Paul Park refinery (processing capacity 105,000 barrels/day), Mandan refinery (processing capacity 72,000 barrels/day), and supporting midstream assets to CVR Energy. The transaction base consideration was US$4.2 billion, plus inventory value. In terms of transaction capital allocation, Marathon crude oil companies will receive 3.45 billion US dollars, and its MPLX subsidiary will receive 750 million US dollars. The transaction is expected to be completed by the end of 2026.

According to financial data disclosed by CVR, the consideration for this purchase is about 8.3 times the target 2025 EBITDA and 3.6 times the EBITDA for the past 12 months. Asset disposal payments will be used to optimize the company's capital layout: Marathon Crude Oil plans to focus on returning the capital to the Gulf Coast and lay out projects with higher returns; MPLX plans to invest capital in growth assets in the Permian Basin and the Marcellus Shale region.

In terms of industry judgment, Marathon Crude Oil management remains optimistic about refining fundamentals. Management believes that the current demand for refined oil products is resilient, inventories are at or below the five-year average, and refining capacity of about 3 million barrels/day is in a state of shutdown and maintenance, which is higher than the historical normal level. The recent decline in gasoline prices is a seasonal adjustment. On a long-term basis, the company determined that the refining industry will maintain a medium cycle boom pattern until the end of 2026, and the high processing gross profit will continue until at least mid-2027.

Morgan Stanley said that in an environment where cracking price spreads continue to fluctuate, the combination of Marathon Crude Oil's “refining business+more stable midstream assets” combines scale advantages and operational execution, which can not only benefit from the recovery of the downstream industry, but also show greater profit resilience when the macro environment weakens. At the same time, MPLX's stable dividend cash flow (about US$2.8 billion) is sufficient to cover Marathon crude oil dividends and regular capital expenses. The management promised to return all excess free cash flow to shareholders in the form of repurchases. The bank expects the company's shareholder return to reach US$10.5 billion for the full year of 2026.