Several big players have seen their stocks soar as high as 150% in the past year.
But there’s one notable exception.
Valero Energy has remained flat, posting a 7% decline over the last twelve months.
In contrast, Marathon Petroleum Corp. has posted a nearly 25% return year-to-date.
The difference comes down to a few factors influencing Valero’s bottomline.
- The 3-2-1 crack spread (indicating the difference between gasoline and diesel sales against crude oil input costs) has been a significant headwind for Valero’s stock.
- Valero is one of many refiners whose bottom line has been hurt by RINs obligations. Renewable Identification Numbers (RINs) are credits used to certify compliance with the Renewable Fuel Standard, requiring specific minimum volumes of renewable fuels to be blended into those sold in the United States.
- Tier 3 gasoline requirements to reduce sulfur content and global competition have increased operational costs and reduced profit margins for Valero.
Valero is the largest independent global refiner with a significant U.S. market presence.
But despite solid comparative metrics…
The above challenges hurt its returns compared to peers like Marathon Petroleum.
Refining segment operating income dropped to $3.4 billion in the last quarter.
However, the company anticipates an upturn through the Port Arthur SAAS project.
It’s scheduled for 2025 and focuses on producing Diamond Green Diesel and Jet-A fuels, which benefit from government incentives and growing commitments to cleaner fuels.
Marathon Petroleum Corp’s Perspective
MPC operates in refining, marketing, and midstream segments, emphasizing its national footprint and substantial refining capabilities. The company’s share buyback strategy, dividend increases, and cash flow have significantly impacted its financial outlook.
In Q3 2023, it reported adjusted EBITDA at $5.7 billion, higher sequentially. [For context, EBITDA means earnings before interest, taxes, depreciation, and amortization].
More — In the last quarter, Marathon Petroleum’s refining assets operated at 94% utilization, processing nearly 2.8 million barrels of crude per day across 13 refineries.
From an investment perspective, Valero and Marathon showcase potential profit opportunities, trading at attractive EBITDA multiples of 2.91x and 3.8x, respectively.
However, caution is advised with Marathon trading at resistance levels and an impending EPS decline. In contrast, Valero is trading around its 200-day SMA and appears positioned for a potential entry point, especially if it dips closer to the $105 range.
Still, I wouldn’t be so quick to trade the stock.
A sustained weakness in crack spreads might offer better entry points in the weeks ahead, and that would be an excellent window to target setups with bigger profit potential.
But that doesn’t mean there are no new opportunities to profit from this week.
Join me here to see how I uncover safe, lucrative opportunities in the oil and gas sector.
Wishing you a blessed and profitable day,