Why A Speedway Sale Could 'Create Several Options' For Marathon Petroleum During Energy Downturn

Marathon Petroleum Corp MPC is reportedly in talks with potential buyers for its Speedway Retail business, although “any deal is likely weeks away,” according to The Wall Street Journal.

A lack of visibility exists for the stock given the company’s announcement earlier this week that a Speedway spin-off via an IPO is likely to be delayed to the first quarter of 2021, according to BofA Securities.

The Marathon Petroleum Analyst: Doug Leggate maintained a Buy rating on Marathon Petroleum with a $61 price target. 

The Marathon Petroleum Thesis: Although this is not the first instance of a report of a possible Speedway sale, such a deal implies upside to the unit’s valuation, Leggate said in a Friday note. (See his track record here.)

A sum-of-the-parts valuation of Speedway excluding West Coast wholesale comes to $12.6 billion, assuming a conglomerate discount rate of 9%, the analyst said. Any deal above this level would be accretive, he said. 

“Continued M&A speculation could reignite market focus on the relative quality and potential value of Speedway versus publicly traded peers.” 

If the net cash proceeds from either a sale or a spin-off are more than $15 billion, it could “create several options” for the remaining entity, which needs funds to maintain liquidity in the current scenario, according to BofA. 

MPC Price Action: Shares of Marathon Petroleum had spiked by more than 6% to $40.90 at the time of publication Friday.

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Photo by Daniel Case via Wikimedia.