Why Passport Capital Likes Marathon Petroleum (MPC) & Top Equity Positions ~ market folly

Wednesday, March 7, 2012

Why Passport Capital Likes Marathon Petroleum (MPC) & Top Equity Positions

John Burbank's hedge fund firm Passport Capital talked about their rationale for owning Marathon Petroleum (MPC) in their year-end letter.

Marathon Petroleum (MPC)

Passport writes, "Marathon has an $11.8 billion market capitalization and an enterprise value of $12.2 billion. We expect the company to generate $3.9 billion in EBITDA in 2012 and free cash flow (FCF) of $1.5 billion, for roughly a 14% FCF yield.

During the quarter, the company raised their quarterly dividend from $0.20/share to $0.25/share, resulting in approximately a 3% dividend yield at year end. During its first analyst day in December, the company emphasized its highly experienced management team, cycle-tested business model, unique integrated asset base, and sound financial position. MPC also emphasized organic projects in 2012 that could increase access to discounted crudes and increase yield of higher margin products like distillates. Their Detroit refinery upgrade (expected by the end of 2012) was reported to be on schedule and budget.

While the fourth quarter was weaker than originally expected given the decline in the Brent/WTI spread, it is typically the weakest quarter of the year. Importantly, the decline in the Brent/WTI spread does not impact our free cash flow estimate for 2012, which provides a yield of 14% and remains unchanged despite the decline in the spread."

So what other funds own Marathon Petroleum? Barry Rosenstein's JANA Partners is the second largest owner of MPC shares after assembling a massive new position in the fourth quarter.

As of December 31st, here were Passport's Top Ten Equity Positions:

1. Marathon Petroleum (MPC): 5% of NAV
2. Liberty Interactive (LINTA): 4%
3. Cytec Industries (CYT): 3%
4. Thoratec (THOR): 3%
5. Tarpon Investimentos (TRPN3.BZ): 2%
6. Cie Financiere Richemont SA (CFR.VX): 2%
7. Vivus (VVUS): 2%
8. C&J Energy Services (CJES): 2%
9. Priceline.com (PCLN): 2%
10. WebMD (WBMD): 1%

You can view an equity analysis of Priceline.com in the brand new issue of our Hedge Fund Wisdom newsletter.

Also, we recently highlighted why Carl Icahn likes WebMD as well. Lastly, you can watch John Burbank's interview with Bloomberg where he talks about why he likes VVUS and why he thinks 2012 is a stockpicker's market.

For more of the hedge fund's commentary, we've also posted up why Passport Capital likes Liberty Interactive (LINTA).

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