For Immediate Release
Chicago, IL – October 28, 2026 – Today, Zacks Equity Research discusses Marathon Petroleum MPC, PBF Energy PBF and Phillips 66 PSX.
Industry: Refining & Marketing
Link: https://www.zacks.com/commentary/3015596/3-top-refining-marketing-picks-on-strong-profit-margins
The Zacks Oil and Gas – Refining & Marketing industry is gaining momentum as strong fuel demand and favorable refining margins boost earnings prospects. Refiners turn crude oil into gasoline, diesel and jet fuel, while many also operate pipelines, storage facilities and retail networks. These businesses can provide additional income when refining conditions change.
The outlook remains encouraging. Industry earnings estimates for 2026 and 2027 have climbed sharply over the past year, and the group holds a top Zacks Industry Rank. Its shares have also outperformed both the broader energy sector and the S&P 500 over the past year.
Strong cash generation and improved financial flexibility could support further investment and shareholder returns. Against this backdrop, three stocks stand out: Marathon Petroleum, PBF Energy and Phillips 66, each offering exposure to favorable refining trends.
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 operate refined product terminals, storage facilities and transportation services. The primary activity of these firms involves purchasing crude or 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. Refining companies are also prone to unplanned outages.
3 Trends Defining the Oil and Gas – Refining & Marketing Industry’s Future
Strong Refining Margins Support Industry Prospects: The refining industry continues to benefit from favorable market conditions, with healthy demand for petroleum products supporting stronger profit margins. Refiners earn money from the difference between the cost of crude oil and the selling prices of finished fuels. When this gap widens, profitability generally improves.
The current strength in refining margins has encouraged expectations of solid earnings through the remainder of 2026. Moreover, industry forecasts suggest that favorable conditions could extend into 2027. This outlook provides refiners with opportunities to generate higher profits, especially those capable of maintaining steady production and responding quickly to changing market conditions.
Strong Cash Generation Opens Doors for Shareholder Rewards: Improving financial flexibility is another encouraging development for the refining industry. Strong profits are allowing refiners to build cash reserves while reducing outstanding debt. Some industry participants are expected to move into a net cash position, where available cash exceeds borrowings.
This could create greater opportunities to reward investors through share repurchases and dividends. Buying back shares can also support earnings per share by reducing the number of shares outstanding. With financial positions becoming healthier, refiners may have greater room to fund essential investments without taking on substantial additional debt. Such flexibility could strengthen investor confidence over time.
Diversified Operations Provide Additional Earnings Support: The refining and marketing industry benefits from business activities beyond converting crude oil into transportation fuels. Fuel retailing, pipelines, storage facilities and transportation services can provide additional income streams, helping reduce dependence on refining profits alone. Lubricants and specialty products also offer opportunities to serve different customer markets.
Meanwhile, renewable diesel and sustainable aviation fuel businesses could enhance growth prospects as cleaner transportation fuels gain attention. A broader operating base can help refiners balance earnings across changing market conditions. This combination of traditional petroleum operations and related businesses could support more stable cash generation and improve long-term investment appeal.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Oil and Gas – Refining & Marketing is a 15-stock group within the broader Zacks Oil – Energy sector. The industry currently carries a Zacks Industry Rank #6, which places it in the top 2% of 247 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates strong 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 top 50% of the Zacks-ranked industries is a result of improving earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming optimistic about this group’s earnings growth potential. As a matter of fact, while the industry’s earnings estimate for 2026 has gone up 253.5% in the past year, the same for 2027 has risen 208.2%.
Considering the encouraging dynamics 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 Outperforms Sector & S&P 500
The Zacks Oil and Gas – Refining & Marketing industry has fared better than the broader Zacks Oil – Energy Sector as well as the Zacks S&P 500 composite over the past year.
The industry has gone up 133% over this period compared with the broader sector’s increase of 39.9%. Meanwhile, the S&P 500 has gained 11%.
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 6.38X, significantly lower than the S&P 500’s 17.65X. It is, however, slightly above the sector’s trailing 12-month EV/EBITDA of 6.29X.
Over the past five years, the industry has traded as high as 6.63X and as low as 1.53X, with a median of 3.43X.
3 Stocks to Buy
Marathon Petroleum: Marathon Petroleum is a major U.S. refining and marketing company, processing crude oil into gasoline, diesel, jet fuel and other petroleum products. Its refineries operate across three key regions: the Gulf Coast, Mid-Continent and West Coast. The Zacks Rank #1 (Strong Buy) company benefits from access to different crude oil supplies, allowing it to choose cost-effective inputs and adjust fuel production according to market demand.
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Source: finance.yahoo.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.
