Key Points:
Marathon Petroleum (MPC, MPC:US) – $53.6B market cap – Technicals: The stock has broken out of a stage-two 16-week cup-with-handle base
and is actionable with immediate support along its rising 50-DMA (-8%). RS line is rising and is at a 52-week high with an RS Rating of 98. Up/Down
Volume ratio has improved to 1 from 0.8 three weeks ago. Company description: Marathon is engaged in refining, marketing, and transporting
petroleum products in the Midwest of the U.S. It owns and operates 94 terminals with a tank storage capacity of 37.5M barrels. 80% of the company’s
revenue is contributed by the mid-stream business and 20% by refining and marketing. Fundamentals: The company has seen a strong rebound in
throughput and refining & marketing margin in 2022. It reached a crude capacity utilization of ~100% in Q2 FY22 (94% in Q2 FY21) with a throughput of 3.1Mbpd (+7% y/y). R&M margin has grown ~3x y/y to $37.54 in Q2 FY22. Martinez renewable project: The company also recently announced closing its 50:50 JV with Neste for the Martinez renewables project. The first phase of the Martinez renewables project facility is currently targeted to be mechanically complete by the end of 2022. Initial production capacity is expected to be 260M gallons per year of renewable fuels. Pretreatment capabilities are expected to come online in the second half of 2023 and the facility is expected to produce 730M gallons per year by the end of 2023. The annual production output will be shared evenly between the JV partners, and each partner will be able to market its share of the products. This is expected to strengthen the company’s footprint in renewable fuels. Looking Forward: While high oil prices could lead to demand destruction, the rising crack spreads could offset this. The high oil and natural gas prices in Europe could result in cutbacks in regional refinery runs, resulting in tight product inventories. ?MPC has market exposure in California and also benefits from its large, high-efficiency USGC refineries at Garyville and Galveston Bay, which can take advantage of related export arbitrage opportunities.
Neoen (NEOP.FR, NEOEN FP) – $3.5B market cap -France’s largest independent renewable energy producer (3.6GW in operation).
We recommend that investors exit positions in Neoen, mainly based on technical deterioration. The stock broke below all its key moving
averages, notably below its 200-DMA last Friday. Within several months of consolidation, it also failed to hold support near €35, or the lows from
March, May, and June 2022. The breakout from late July held for a while but has now completely failed.
Mixed H1 results: In H1 2022, revenue was up 36% y/y to €224M (beat consensus by 14%), driven by an increased portfolio size to 3,584MW
(+3% y/y).
Key Points:
Cathay Pacific Airways (CATH.HK, 293:HK; -1.9%) – $7.2B market cap – Technicals: The stock is forming the right side of a stage-one six-week
flat base and approaching its pivot (+2%). RS line is at its 52-week high with an RS Rating of 93. It has the best possible A/D Rating of A+ and its
Up/Down Volume ratio has improved to 2 from 1.4 last week. Company description: Cathay Pacific is mainly engaged in the provision of international
passenger and cargo air transportation
Key Points:
Flex LNG (FLNG; FLNG:US; +6%) – $1.9B market cap – Technicals: The stock broke out of a stage-one nine-week cup-with-handle base five
weeks ago. It again bounced off its 50-DMA this week after some consolidation in the last four weeks. RS line is at its all-time high with an RS Rating
of 98. Up/Down Volume ratio has remained above one in the last nine weeks while A/D Rating is healthy at B-. Industry Group Rank has improved to 3
from 17 five weeks ago.
Key Points:
Shoals Tech (SHLS; SHLS:US; +3%) – $3B market cap – Technicals: The stock retook its 200-DMA in the last week of July and has traded
constructively since then, accompanied by an improvement in its Up/Down Volume ratio to 1 from 0.8 three weeks ago. Also, RS and A/D Ratings
have remained strong at 97 and A-, respectively.
Paychex (PAYX; $48B market cap; $226M ADV) provides human capital management (HCM) software and HR, payroll, and insurance management services. It is a competitor of our Focus List stock Automatic Data Processing (ADP). Revenue by segment: management solutions, 76%; PEO and insurance, 24%.
Paychex focuses on small-to-medium-sized businesses and has a target market of over 8M firms in the U.S. It offers personalized solutions to clients on a SaaS model, ensuring high client retention. It may benefit from increased investment in its proprietary Paychex Flex platform and growing client base through the expansion of its direct and indirect sales network. It has a strong financial profile with ROE of 45% in the past year and good free cash flow. In FY22, the company generated FCF of close to $1.3B. It has no net debt and is a consistent dividend payer with a dividend yield of 2.3%. Management has guided for total revenue growth of 7–8% y/y in FY23 with management solutions growth of 5–7% and PEO and insurance growth of 8–10% y/y. It has also maintained its guidance for a full-year adjusted EBITDA margin of close to 44%, with an adjusted EPS growth of 9–10%.
