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Marathon Petroleum Set to Get a Boost from Speedway Unit


Marathon Petroleum’s MPC retail unit, Speedway, is the second largest gasoline and convenience-store chain in the United States with around 2,744 stores across 21 states. In addition to its stores, Speedway owns 29% stake in PFJ Southeast LLC, a joint venture between Speedway and Pilot Flying J with 124 travel plazas mainly in the Southeast United States.

Speedway has been contributing to the company’s earnings significantly amid the changing dynamics of the oil industry. The segment contributed around 23% of the company's total earnings in 2016. The unit achieved a robust full-year performance in 2017, generating revenues of $19,033 million, up 4.1% from $18,286 million recorded in 2016.

Concurrently, the segment reported record profit of $732 million in 2017, excluding certain adjustments recorded in 2016. Growth in same-store merchandise sales, lower operating expenses and contributions from PFJ Southeast drove the segmental income.

Notably, Marathon Petroleum, which had been contemplating the spin-off of Speedway due to pressure from hedge fund, Elliott Management Corp., finally decided to retain the unit. This will position the company for long-term values to shareholders.

The segment now remains primed for solid earnings and growth on healthy merchandise margins. Speedway, banking on its marketing enhancement opportunities and acquisition synergies, including the retail arm of Hess Corp. HES, is poised for growth.

Notably, Marathon Petroleum intends to make an investment of around $530 million in Speedway in 2018 by the construction of new stores and remodeling of the existing ones, thus focusing on organic growth opportunities. Marathon Petroleum intends to strengthen the geographical foothold of its Speedway unit by entering new markets including Georgia, South Carolina and upstate New York. The company believes that the improving market conditions are likely to boost margins and the financial position of the Speedway unit in the coming quarters.

Zacks Rank and Other Stocks to Consider

Findlay, OH-based Marathon Petroleum is a leading independent refiner, transporter and marketer of petroleum products. Shares of Marathon Petroleum have gained 2.6% year to date, significantly outperforming the industry’s 5.8% decline.

The company sports a Zacks Rank #1 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Other top-ranked players in the same industry include Delek US Holdings, Inc. DK and HollyFrontier Corp. HFC. While Delek flaunts a Zacks Rank #1, HollyFrontier carries a Zacks Rank #2 (Buy).

Delek’s earnings are expected to witness a year-over-year increase of 85.71% in 2018.

HollyFrontier’s earnings are expected to witness an increase of 55.17% in 2018 from the prior-year quarter.

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