Marathon Petroleum

Methodology

Marathon Petroleum's refining earnings are extremely cyclical with crack spreads and product demand, making it essential to use mid-cycle normalized earnings rather than peak or trough figures. Refining margins swing dramatically with supply-demand balances. Assess sustainable earnings across a complete industry cycle to avoid being misled by temporary conditions.

Methodology

PEG analysis is challenging for Marathon given volatile earnings and periods of losses during weak refining environments, followed by exceptional profits during strong crack spreads. During peaks, seemingly low PEG ratios are dangerously misleading. Focus on price-to-book value, replacement cost analysis, and return on capital through the cycle rather than earnings growth metrics.

Methodology

Marathon offers substantial dividends and aggressive buybacks during profitable periods, with capital returns adjusting based on refining cycle strength. The variable dividend policy aims to return excess cash when crack spreads are favorable. PEGY can look attractive at cycle peaks but misleads about sustainable returns given extreme earnings volatility.