Back to top

Image: Bigstock

Marathon Petroleum (MPC) to Take Call on Speedway Spin Off

Read MoreHide Full Article

Oil refining and marketing giant Marathon Petroleum Corporation (MPC - Free Report) is set to take a final call regarding the transformation of its retail network unit – Speedway LLC – into a new independent entity soon.

Marathon Petroleum had been considering the spin off to streamline its portfolio and enhance its core competencies for quite some time now.  The company formed a special committee in January to assess the financial and strategic alternatives of Speedway. The completion of the review is expected to be completed in the third quarter of 2017.

What Prompted the Spin Off?

Hedge fund firm Elliott Management Corp. – one of the largest shareholders of Marathon Petroleum – believes that the downstream operator’s stock is undervalued. With Speedway spin off, the eventual stock value is likely to surpass the current value. It wants the company to disintegrate into three standalone businesses –retailing, midstream and refining, thereby optimizing shareholder’s value and improve focus in each individually unit.

Elliott Management Corp. has been requesting the company repeatedly to consider the Speedway spin off and conduct a thorough strategic review for the same. The review includes the tax advantage through which Marathon Petroleum’s investors will automatically become the shareholders in the Speedway unit through tax-free distribution of new shares.

Spin Off Set to Unlock Shareholder Value

Based in Ohio, Speedway is the second-largest gasoline and convenience store chain in the U.S. with around 2,730 stores across 21 states. The Speedway segment contributed around 23% of the company's total earnings in 2016. It delivered lower year-over-year revenues of $135 million in the first quarter due to weaker margins of gasoline and merchandise.

However, the company believes that the improving market conditions are likely to boost the margins and the financial position of the Speedway unit in the coming quarters. With increased business focus on individual operations and core competencies, Speedway is expected to perform better as a separate entity as opposed to its performance as a consolidated unit. The Speedway spin off is expected to unlock around $14–$19 billion for investors.

Speedway which is banking on its marketing enhancement opportunities and acquisition synergies, including the retail arm of Hess Corporation (HES - Free Report) , is poised for growth and is expected to deliver a better performance as a separate entity in future. The spinoff will enable both Marathon Petroleum and Speedway to focus their attention and resources on their individual core operations.

To accelerate value accretion for shareholders and boost growth, Marathon Petroleum is actively engaged in drop-down transactions lately. Few months ago, the company announced that it has divested of some of its terminal, pipeline and storage assets to MPLX LP (MPLX - Free Report) . The asset sale helped Marathon Petroleum garner proceeds of $2.02 billion from its master limited partnership, which it had spun off in 2012.

Zacks Rank and Key Pick

Findlay, OH-based Marathon Petroleum is a leading independent refiner, transporter and marketer of petroleum products. The company, under the Zacks categorized Oil and Gas Refining and Marketing industry, currently carries a Zacks Rank #3 (Hold).

Marathon Petroleum Corporation Price

 

A better-ranked player in the same industry is Delek US Holdings, Inc. (DK - Free Report) .

Delek US Holdings, sporting a Zacks Rank #1 (Strong Buy), delivered a positive average earnings surprise of 60.68% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

 It's not the one you think.

See This Ticker Free >>