Goldman Sachs Analysts Highlight an Undervalued Energy Stock3-min read

Goldman Sachs recently revealed that it is bullish on Marathon Petroleum, expecting it to outperform as the oil industry’s prices become more volatile.

Following the start of the global energy crisis, most energy stocks have been rather volatile. While some have seen this as a sign to get out of the energy sector, others view it as an opportunity.

Goldman Sachs, for example, recently announced that it is bullish on a specific energy stock, which is heavily undervalued, according to the bank. The stock belongs to a company called Marathon Petroleum, and Goldman’s analysts believe that it is heavily undervalued. As such, it is only a matter of time before it outperforms competitors.

Goldman Sachs and Energy Markets: The Context

Energy market volatility refers to the rapid and unpredictable fluctuations in the price of energy commodities such as oil, natural gas, and electricity. These price swings can be caused by a range of factors, including geopolitical tensions, weather patterns, supply and demand imbalances, and global economic conditions. In recent years, energy market volatility has become a major concern for investors and market participants, as it can significantly impact profitability and investment decisions.

Goldman Sachs, one of the largest investment banks in the world, has been heavily involved in the energy market for decades. The bank’s traders and analysts closely monitor energy market volatility and seek to profit from it through various financial instruments such as futures contracts, options, and swaps. In 2020, Goldman Sachs reported that it had benefited from increased trading activity and higher revenue in its commodities division due to the volatile energy markets.

Goldman Sachs Encourages Buying MPC

According to Goldman, there has recently been a shift in the energy market, which changed its stance from neutral to buy. After considering its options, Goldman decided to double down on Marathon Petroleum, which was previously downgraded to neutral in 2018. This stance towards the company’s stock remained unchanged until 2022, as it “prematurely” reduced its rating.

Now, one of Goldman’s analysts, Neil Mehta, said that he still sees momentum for the stock. He expects it to bring significant gains in the coming months. Mehta added that the reason why MPC went from Buy to Neutral was primarily due to its valuation. However, the company has still managed to outperform GS and Street estimates across all of its business segments.

He concluded that MPC was able to return substantial amounts of capital over the last few years. As a result, Goldman Sachs has decided to raise its buyback forecast. All of the mentioned factors have managed to change the firm’s view on the stock, to the point where it raised its price target from $132 to $150, which marks a 14% increase.

Marathon Petroleum’s Quarterly Report Bodes Well

The change in stance towards Marathon came shortly after it released its quarterly earnings data on January 31st of this year. The company reported $6.65 EPS, managing to beat expectations by $1.11. The report further revealed that its revenue for the quarter was $39.82 billion, while analysts expected $25.29 billion. The revenue was also 12.7% higher than the figure from the year before. Its net margin was at 8.07%, according to the report, and its return on equity climbed up to 41.55%.

Marathon Petroleum segments its operations into marketing and refining, as well as certain midstream activities, including the purchase of ethanol and refined products meant for resale. At least, this is the case in the US. Also, its operations in Gulf Coast and Midwest territories include refining crude oil.

After seeing the figures, Goldman Sachs Group encouraged investors to buy. However, other analysts still remain doubtful due to potential problems that might emerge due to the price fluctuations in the energy sector.