3 Refining & Marketing Stocks Investors Should Track Closely

Core Viewpoint - The Zacks Oil and Gas - Refining & Marketing industry faces significant challenges due to margin volatility and rising operational costs, yet it has outperformed the broader energy sector and S&P 500 over the past year, presenting selective investment opportunities in companies like Phillips 66, Marathon Petroleum, and Valero Energy [1][10]. Industry Overview - The industry includes companies that refine petroleum products and non-energy materials, with profitability heavily influenced by refining margins, inventory levels, and demand patterns [2]. - Refining margins are volatile and affected by various factors including crude prices, product demand, and regional capacity utilization [2]. Trends Defining the Industry's Future - Margin volatility and demand uncertainty are persistent risks, with crack spreads subject to rapid changes due to external factors like weather and refinery operations [3]. - Operational flexibility and strong export linkages are crucial for managing volatility, allowing refiners to optimize yields and respond to market demands effectively [4]. - Rising costs and regulatory pressures pose challenges, with maintenance and compliance expenses increasing, which can compress margins and create operational risks [5]. Industry Rank and Outlook - The industry currently holds a Zacks Industry Rank of 197, placing it in the bottom 19% of 243 Zacks industries, indicating a bearish outlook [7]. - Analysts have revised earnings estimates downward, with a 17.5% decrease in the industry's earnings estimate for 2026 over the past year [8]. Performance Metrics - The industry has increased by 24.7% over the past year, outperforming the broader energy sector's 17% increase and the S&P 500's 16.8% gain [10]. - The current EV/EBITDA ratio for the industry is 5.05X, significantly lower than the S&P 500's 17.20X and the sector's 6.07X [13]. Company Highlights - Phillips 66: A major independent refiner with a refining capacity of nearly 2 million barrels per day, expected EPS growth rate of 25%, and shares have gained 21.6% in a year [16][17]. - Marathon Petroleum: A significant independent refiner with access to lower-cost crude, expected EPS growth of 18.8%, and shares have increased by 31.5% in a year [19][20]. - Valero Energy: Operates 15 refineries with a throughput of about 3.2 million barrels per day, expected EPS growth of 15.7%, and shares have risen by 47.1% in a year [21][22].