The Zacks Oil and Gas - Refining & Marketing industry faces a mixed outlook, shaped by both opportunities and challenges. Volatility in refining margins, driven by fluctuating crack spreads and global economic uncertainties, creates short-term pressure. Turnaround activities and lower crude prices further weigh on operating efficiency.
Rising costs, including wage pressures and expansion expenses, add complexity. However, steady demand growth for refined products like gasoline, diesel and jet fuel offers a silver lining. Within this evolving landscape, Marathon Petroleum, Valero Energy and Galp Energia stand out for their robust operations and strong strategic execution.
Industry Overview
The Zacks Oil and Gas - Refining & Marketing industry consists of companies involved in selling refined petroleum products (including heating oil, gasoline, jet fuel, residual oil, etc.) and a plethora of non-energy materials (like asphalt, road salt, clay and gypsum). Some companies also operate refined product terminals, storage facilities and transportation services.
The primary activity of these firms involves buying crude/other feedstocks and processing them into a wide variety of refined products. Refining margins are extremely volatile and generally reflect the state of petroleum product inventories, demand for refined products, imports, regional differences and capacity utilization in the industry. Other major determinants of refining profitability are the light/heavy and sweet/sour spreads. Refiners are also prone to unplanned outages.
3 Trends Defining the Oil and Gas - Refining & Marketing Industry's Future
Volatility in Margins and Economic Uncertainty: Refining margins remain susceptible to fluctuating crack spreads and global economic uncertainties, particularly within key markets like China. Seasonal supply disruptions and higher project-related expenses during turnarounds can weigh on operating efficiency. Additionally, challenges from lower crude prices and shifting energy policies could pressure cash flows, making long-term profitability less predictable and exposing the industry to cyclical risks.
Steady Demand Growth and Competitive Advantages: The global reining and marketing industry benefits from robust refined product demand growth, particularly in gasoline, diesel and jet fuels. Structural advantages, such as access to low-cost energy and high facility complexity, position U.S. refiners favorably against global peers. Geographic diversification and integrated refining systems further enhance competitiveness, enabling sustained profitability. These dynamics create a mid-cycle environment that supports strong margins and provides opportunities for capital return and strategic reinvestment.
Rising Costs: Increasing operational costs from store expansions and wage pressures weigh on the downstream operators’ financial performance. Competitive pricing in non-fuel categories and slower recovery in discretionary spending create headwinds. Together, these factors underscore the need for careful cost management and strategic planning to navigate short-term pressures in an evolving market environment.
Zacks Industry Rank Indicates Bearish Outlook
The Zacks Oil and Gas - Refining & Marketing is a 14-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #204, which places it in the bottom 18% of 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. As a matter of fact, while the industry’s earnings estimate for 2024 has gone down 29.5% in the past year, the same for 2025 has fallen 20.3% over the same timeframe.
Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms Sector & S&P 500
The Zacks Oil and Gas - Refining & Marketing industry has fared worse than the broader Zacks Oil - Energy Sector as well as the Zacks S&P 500 composite over the past year.
The industry has gone down 11.2% over this period compared with the broader sector’s increase of 8.2%. Meanwhile, the S&P 500 has gained 29.2%.
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of noncash expenses.
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA), the industry is currently trading at 3.38X, significantly lower than the S&P 500’s 18.81X. It is also slightly below the sector’s trailing 12-month EV/EBITDA of 3.58X.
Over the past five years, the industry has traded as high as 6.72X and as low as 1.74X, with a median of 3.56X.
3 Stocks in Focus
Marathon Petroleum: It is a leading independent refiner, transporter and marketer of petroleum products. Marathon Petroleum's access to lower cost crude in the Permian, Bakken, and Canada helps it to benefit from the differentials. The company’s exceptional cash flow generation and aggressive shareholder returns are key drivers for stock price appreciation.
Findlay, OH-based Marathon Petroleum has a market capitalization of $48.6 billion. MUSA beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. The company carries Zacks Rank #3 (Hold). Shares of MPC have gained 3.6% in a year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Valero Energy: San Antonio, TX-based Valero Energy is the largest independent refiner and marketer of petroleum products in the United States. The company has a refining capacity of 3.2 million barrels per day across 15 refineries located throughout the United States, Canada and the United Kingdom.
VLO’s expected EPS growth rate for three to five years is currently 6%, which compares favorably with the industry's growth rate of 5.1%. Valero Energy beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other, the average being 8.2%. Shares of this Zacks Rank #3 company have gained 6.8% in a year.
Galp Energia: It is a Portuguese integrated energy firm with a significant presence in the downstream segment. The company’s Refining and Marketing unit is responsible for the supply and trade of oil and biofuels, and the operation of oil and gas refineries. It operates two refineries in Portugal.
GLPEY, based in Lisbon, has a four-quarter average earnings surprise of 51.2%. The firm has a market capitalization of $12.3 billion. This #3 Ranked company’s shares have increased 22.1% in a year.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
