An April 30, 2018, research note issued by Raymond James indicated that Marathon Petroleum Corp. (NYSE:MPC) has agreed to merge with Andeavor (NYSE:ANDV).
"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.
Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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