After many months of dithering, OPEC at last agreed to cut production this week.
But the stock has risen in the past couple of weeks after activist hedge fund Elliott Management , which owns about 4% of Marathon's shares, sent a letter to the company with recommendations on how to unlock shareholder value. There are more gains in store for investors if Marathon follows Elliott Management's advice.
The hedge fund was founded by billionaire Paul Singer and is known for its 15-year fight with Argentina over the nation's 2001 default. It also pressed for changes to the structure of Anheuser Busch Inbev's (BUD acquisition of SABMiller.
Elliott Management said the stock could soar 60% to 80% if Marathon Petroleum moved all assets that qualify to its master limited partnership MPLX (MPLX - Get Report) and conducted a full strategic review.
The hedge fund also said that Marathon Petroleum should consider splitting itself up into three separate companies: the Speedway chain of gas stations and convenience stores, the midstream operation and the refining business.
Marathon's wholly owned retail marketing subsidiary, Speedway, is the nation's second-largest chain in this space, with exposure in about 2,770 locations in 22 states. About 6.04 billion gallons of fuel was sold by Speedway in 2015, and $4.88 billion was netted as merchandise sales in 2015. The 5,400 Marathon brand locations (owned by others) in 19 states are also pretty big, with 5.02 billion gallons of fuel sold to branded locations in 2015.
Although Marathon's business is diversified and arguably is safer as a result, its valuation doesn't appear to show that.
We saw tremendous value unlocked back in 2012 when ConocoPhillips (COP - Get Report) completed the spinoff of Phillips 66 (PSX - Get Report) , which was a refining, marketing, chemicals and transportation arm. Phillips 66 is valued at $44 billion today.
Interestingly, the plan to unlock value by spinning off assets was considered by Marathon's management itself in 2011.
Elliott has already tasted success with gas and oil producer Hess (HES - Get Report) . The hedge fund forced the company to offload its gas stations and exit its refining business. But lower crude prices have been a drag on the producer's fortunes.
One only needs to wait and watch what happens at Marathon Petroleum in the coming days. This stock could continue to surprise its investors.
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