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On Jan 8, 2014, we upgraded independent oil refiner and marketer Marathon Petroleum Corp. (MPC - Analyst Report) to Neutral from Underperform.

Why the Upgrade?

Spun out of parent Marathon Oil Co. (MRO - Analyst Report) in 2011, the company’s positives include its scale advantage, impressive asset quality and an extensive midstream/retail network. We believe management’s steady dividend increases, the ongoing share repurchase program and the recent acquisition of BP Plc’s (BP - Analyst Report) Texas City refinery could further boost shareholder value.

Detailed Analysis

Marathon Petroleum is the fourth largest domestic refiner with a combined crude oil processing capacity of approximately 1.7 million barrels per day through its portfolio of seven refineries. A major advantage for the company is its proprietary access to pipelines, which inhibits lower-cost competitors from supplying Marathon Petroleum's key markets.

Marathon Petroleum’s purchase of BP's Texas City refinery – one of the largest and most complex in the country – will consolidate the position of the former in the fuel export business, apart from improving production flexibility.

The Findlay, Ohio-based firm’s financial flexibility and strong balance sheet are real assets in this highly-uncertain period for the economy. Marathon Petroleum remains in excellent financial health, with over $2 billion in cash/cash equivalents and an investment-grade credit rating with a debt-to-capitalization ratio of 23%. Furthermore, regular dividend increases and the ongoing share buyback program highlight the company’s commitment to create value for shareholders.

Stocks That Warrant a Look

While we expect Marathon Petroleum Resources to perform in line with its peers and industry levels in the coming months and advice investors to wait for a better entry point before accumulating units, one can look at CVR Energy Inc. (CVI - Snapshot Report) as a good buying opportunity. This downstream energy operator – sporting a Zacks Rank #1 (Strong Buy) – has solid secular growth  with the potential to rise considerably from the current level.

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