Exxon Mobil Corp. (XOM) explores, develops, and distributes crude oil, natural gas, and petroleum products, as well as electric power generation and coal and mine operations.

This month, Affiliates of ExxonMobil have signed a contract selling Green Gate Resources E, LLC, a division of IKAV, all of ExxonMobil's interests in the California oil production operation Aera. The deal entails the sale of Mobil California Exploration & Producing Asset Company shares.

A separate contract for the sale of a related loading facility and pipeline system has also been made by ExxonMobil affiliates. Also, according to Reuters, XOM and Shell plc (SHEL) put their Netherlands-based gas-producing joint venture, NAM, up for sale amid rising natural gas prices.

Moreover, analysts expect XOM’s revenue and EPS to decline 7.1% and 16.5% year-over-year in fiscal 2023. Also, the stock is trading at a premium to its peers. In terms of non-GAAP forward P/E, the stock is trading at 7.32x, 1.8% higher than the industry average of 7.19x. In terms of non-GAAP forward PEG, the stock’s 5.49x is significantly higher than the industry average of 0.53x.

On the other hand, Marathon Petroleum (MPC) operates as an integrated downstream energy company primarily in the United States, with operations in petroleum product refining, marketing, retail, and midstream. It operates in two segments: Refining and Marketing and Midstream.

MPC reported robust second-quarter results. Furthermore, the company made a lot of progress during the quarter. During May-July, the company repurchased $4.1 billion in shares, completing more than 80% of its target of $15 billion in common stock repurchases.

This was after MPC completed the $21 billion sale of its Speedway business, which included approximately 3,900 convenience stores in 35 states, to Japan-based retail group Seven I Holdings, which owns the 7-Eleven convenience store chain.

OPEC projects an increase in oil demand of 3.10 million barrels per day (BPD) and 2.70 million BPD in 2022 and 2023, respectively, driven by recovering oil consumption and the robust economic growth of the major oil-consuming nations.

While both XOM and MPC should be beneficiaries of the industry tailwinds, here is why MPC appears to be a better investment now:

Robust Financials

During the second quarter ended June 30, 2022, MPC's total revenue and other income increased 81.8% year-over-year to $54.24 billion. Its income from continuing operations increased 736% year-over-year to $8.33 billion. The company reported a net income of $5.87 billion, while its EPS amounted to $10.95.

Impressive Growth Prospects

Street expects MPC's revenues and EPS to rise 43.3% and 763.7% year-over-year to $173.24 billion and $21.16, respectively, in fiscal 2022. In addition, MPC's EPS is expected to rise at a 30.9% CAGR over the next five years.

Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in all of the trailing four quarters.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 4.54x, 36.8% lower than the industry average of 7.19x. Also, its forward EV/Sales of 0.41x is 77.8% lower than the industry average of 1.84x. Moreover, MPC's forward Price/Sales of 0.28x is 78.6% lower than the industry average of 1.31x.

Consensus Rating and Price Target Indicate Potential Upside

Of the 10 Wall Street analysts that rated MPC, eight rated it Buy, and two rated it Hold. The 12-month median price target of $118.20 indicates a 23.6% potential upside. The price targets range from a low of $99.00 to a high of $135.00.

POWR Ratings Reflect Solid Prospects

MPC has an overall grade of A, equating to a Strong Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. MPC has an A grade for Quality and Growth. MPC's solid earnings and revenue growth potential is consistent with the Quality and Growth grade.

Of the 95 stocks in the B-rated Energy – Oil & Gas industry, MPC is ranked #5.

Beyond what I stated above, we have graded MPC for Sentiment, Stability, Value, and Momentum. Get all MPC ratings here.

Bottom Line

MPC reported strong second-quarter results. Furthermore, the company is projected to maintain its focus on cost containment while also improving operational performance. Given the company's strong financials, lower-than-industry valuation, and solid revenue and earnings growth projections, we believe it is a better investment than XOM.

How Does Marathon Petroleum Corporation (MPC) Stack Up Against its Peers?

MPC has an overall POWR Rating of A, which equates to a Strong Buy rating.  Check out these other stocks within the same industry with A (Strong Buy) ratings: Valero Energy Corp. (VLO), Whitecap Resources Inc. (SPGYF), and PBF Energy Inc. (PBF).

MPC shares were trading at $95.98 per share on Monday afternoon, up $0.33 (+0.35%). Year-to-date, MPC has gained 52.94%, versus a -17.68% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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