Oil Stock Moves Lower on Staff Reduction, Bear Note

Wells Fargo cut its price target on the company's earnings outlook

Assistant Editor
Oct 1, 2020 at 9:46 AM
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The shares of Marathon Petroleum Corporation (NYSE:MPC) are down 1.2% at $29 at last check, after the oil company began implementing its workforce reduction plan. Marathon is planning on cutting 12% of its staff due to the coronavirus pandemic, and its master limited partnership (MLP) MPLX LP expects to reimburse MPC for about $20 to $35 million of severance and employee benefit expenses. Also weighing on the stock is a price-target cut from Wells Fargo to $42 from $51, who cited the upcoming U.S. presidential election as a real overhang.

For the last month or so, MPC has been seeing pressure at the $30 region and its descending 10-day moving average. Steadily moving lower since it was rejected by the $40 region and 160-day trendline in early August, the equity is down 51.3% year-to-date. 

Despite today's bear note, most analysts are looking bullish on MPC. Ten of the 13 analysts in coverage sport a "buy" or better rating on Marathon stock, with the remaining three at a tepid "hold" and no sells or worse in sight. Meanwhile, the 12-month consensus price target of $46 is still a 56.8% premium to current levels. In other words, there's ample room for more price-target cuts in the future.

In the options pits, though calls outnumber puts in terms of absolute volume, puts are much more popular than usual. MPC's 10-day put/call volume ratio of 0.94 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than 96% of its annual readings. This means that puts have rarely been picked up at this rate in the past 12 months.

Options look like a decent way to go when weighing in on MPC. The stock's Schaeffer's Volatility (SVI) of 56% sits in the 20th percentile of its annual range. In other words, options traders are pricing in relatively low volatility expectations at the moment. 

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