Marathon Oil Corporation

MRO Details 

Sneak Peek at 1QFY20 Financial Highlight: Marathon Oil Corporation (NYSE: MRO) is a top oil and natural gas exploration and production (‘E&P’) company, which has its business operation in the United States and Africa. The company operates under two business segments called United States units, & International units. During Q1 2020, the company reported adjusted net loss of 16 cents per share, as compared to the previous corresponding quarter’s earnings figure of 31 cents per share. The company’s bottom-line was primarily impacted by the lower commodity price due to COVID-19 outbreak. Revenues during the quarter stood at $1.2 billion, up 2.8% from the prior corresponding period on account of robust sales volumes. Notably, the coronavirus crisis has led to significant ambiguity surrounding the near-term macroeconomic and historic oil market crash. In lieu of the uncertainty, the company took measures to save cash and therefore, suspended its quarterly dividend and share repurchase program. During the quarter, total costs stood at $1.2 billion, slightly more than the year-ago figure of $1.1 billion.

1QFY20 Key Highlight (Source: Company Reports) 

Segment Highlight: U.S. average production per day stood at 340,000 net barrels of oil equivalent. U.S unit production costs were the lowest quarterly average since Marathon Oil became an independent exploration and production company and stood at $4.63 per boe. MRO’s Equatorial Guinea production averaged 82,000 net boed and unit production costs averaged $2.35 per boe.

Balance Sheet & Cash Flow Details: The company exited the period with cash and cash equivalents of $817 million. Net operating cash flow for the period came in at $701 million as compared to $515 million reported in 1QFY19. During the quarter, the company repurchased $85 million of shares and paid dividends amounting to $40 million.

Risk Analysis: The view for exploration and production business seems dismal. The slump in commodity prices due to rising coronavirus pandemic along with the oil price war between Russia and Saudi Arabia is hurting energy demand worldwide. Currently, there is no significant sign of the recovery in oil consumption. Marathon Oil is enormously getting disturbed by this declining trend in the crude oil price. 

Outlook: Considering the fall in commodity prices and market uncertainties related to the coronavirus pandemic, MRO decided to suspend its previously provided guidance. The company has revised its total capital expenditure guidance for 2020 to $1.3 billion or less, representing a minimum reduction of $1.1 billion on the initial guidance. This updated capital budget implies only 50% of the company’s capital spending in 2019.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)  

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of MRO closed at $7.32 with a market capitalization of ~$5.78 billion. The stock made a 52-week low and high of $3.02 and $14.7, respectively, and is currently trading below the average of its 52-week trading range. At the closing price of $7.32, current dividend yield for the stock stands at 3.36%. The stock has given positive return of ~7.32% in the last one month but went down 23.18% in the last three months period. Considering the above factors, we have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a limited upside (in % terms). For the purpose, we have taken peers like Devon Energy Corp (NYSE: DVN), Noble Energy Inc (NYSE: NBL), Cimarex Energy Co (NYSE: XEC), to name few. Hence, we have a watch stance on the stock at the closing price of $7.32, up 17.5% on 5 June 2020.

MRO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.