Refining & Marketing Industry Outlook: 4 Stocks in Focus

Core Viewpoint - The Zacks Oil and Gas - Refining & Marketing industry is evolving to balance reliable fossil fuel output with investments in cleaner, lower-carbon solutions, driven by government incentives and corporate demand, while U.S. refiners are increasing exports to capture margins and diversify revenue streams [1][3][4]. Industry Overview - The industry includes companies that sell refined petroleum products and non-energy materials, operating terminals, storage facilities, and transportation services. Refining margins are volatile and influenced by various factors including inventory levels, demand, and capacity utilization [2]. Trends Defining the Future - Growing Role of Low-Carbon Solutions: Refiners are investing in renewable diesel and sustainable aviation fuel, supported by government incentives and corporate demand, which positions them for long-term relevance in a decarbonizing economy [3]. - Advantaged Export Opportunities: U.S. refiners are leveraging strong international demand, particularly from Latin America and Europe, to export refined products, enhancing profitability and providing a hedge against domestic market fluctuations [4]. - Margin Pressure from Volatile Prices: The industry faces risks from fluctuating crude oil prices and inflationary cost pressures, which could impact earnings stability and shareholder returns [5]. Industry Outlook - The Zacks Oil and Gas - Refining & Marketing industry holds a Zacks Industry Rank of 56, placing it in the top 23% of 246 Zacks industries, indicating strong near-term prospects [6][7]. Performance Comparison - Over the past year, the industry has underperformed compared to the broader Zacks Oil - Energy Sector and the S&P 500, with a decline of 10.1% versus a decrease of 0.6% for the sector and a gain of 15.9% for the S&P 500 [9]. Current Valuation - The industry is currently trading at an EV/EBITDA ratio of 4.24X, significantly lower than the S&P 500's 17.60X and the sector's 4.92X, indicating a potential undervaluation [12]. Stocks in Focus - Par Pacific Holdings: Operates an integrated energy platform with a refining capacity of 219,000 barrels per day and a market cap of $1.5 billion, showing a projected earnings growth of 394.6% for 2025 [15][16]. - Galp Energia: A Portuguese company with a market cap of $13.1 billion, producing over 100,000 barrels of oil equivalent per day, and a four-quarter average earnings surprise of 47.2% [18][19]. - Marathon Petroleum: A leading independent refiner with a market cap of $50 billion, known for strong cash flow generation and shareholder returns, with a recent earnings estimate increase of 8.5% for 2025 [21][22]. - Phillips 66: One of the largest independent refiners with nearly 2 million barrels per day of refining capacity, expected EPS growth rate of 15.5% over three to five years [24][25].