Marathon Oil Corp (MRO) top pick, target $82

Discussion in 'Stocks' started by aresky, May 1, 2008.

  1. aresky


    Citigroup Global Markets
    1Q08 Earnings: Initial Reaction
    30 April 2008

    MRO reported clean earnings of $1.00 vs. consensus at $0.82 (CIR $0.81),
    leaving earnings slightly below last year ($1.02). The beat versus consensus
    was better integrated gas earnings, and a lower tax rate which benefited from
    favorable consolidation effects likely related to the lower tax/higher earnings in
    At the operating level, E&P earnings of $684mm were in line with our
    expectations ($674mm), while an R&M loss of $75 was slightly better than
    expected ($102m loss). Integrated Gas earned $99m versus $45m expected
    and will likely cause the market to revisit the leverage MRO has to US gas
    prices from its EG LNG facility. Corporate charges of $17m compared with
    $75m expected.
    Oil and gas production of 378,000boe/d was slightly ahead of our expectations
    (374,000boe/d) and up over 11% year over year. With the start up of Alvheim
    imminent, MRO promises growth of over 20%, if oil sands is included as it is in
    the upstream of its peers.
    Looking ahead, we continue to view MRO as among the most opportunity rich
    of the US oils: accelerating exploration success, a strong strategic integrated
    gas position and a powerful upstream growth. While share performance has
    been depressed by a weak downstream the reason to own this stock is the
    evolving E&P story, which we expect to accelerate in 2H08.

    Investment strategy
    We rate the shares of Marathon Oil (MRO) Buy/Medium Risk (1M). The
    resurgence and subsequent success of Marathon’s three-legged strategy
    focused on upstream, downstream, and integrated gas sets the company apart
    from its peers. Moreover, the company is still relatively small scale and
    exposure to a material opportunity set across all businesses more than
    compensates for the macro risk that we perceive exists in the sector over the
    medium term. 2007 looks sound to us and holds the potential for progress on a
    number of fronts. In particular, building out a strong LNG position, continuing
    exploration in West Africa, and securing access to Canadian oil sands through
    the recently announced WTO acquisition represent material opportunities.
    Our 12-month target price for MRO is $82 per share. Our primarily valuation
    method is based on implied assessment of MRO’s assets. Exploration is the key
    story with this company, but the shares are ignoring a growing list of unbooked
    discoveries where value is verified by recent transactions. Therefore, we have
    calculated the implied values for MRO’s proven and probable reserves (P1 and
    P2) based on mid-cycle assumptions ($75 WTI and $7.50 Henry Hub) along
    with the downstream and LNG business. Additional the recent acquisition of
    WTO has been incorporated into our analysis. Alongside our assessment of MRO's upstream and downstream value, we include net debt of $8 billion at quarter end and an operating loss carry forward of $1 billion incurred in recent years, primarily associated with Norway and Angola, which yields an implied equity value of $82 per share.
  2. aresky


  3. aresky


    08:09 AM
  4. aresky


  5. Cramer's the ultimate fucking god damn fade, MRO is sinking fast.

    (Disclosure, long and wrong)
  6. The 1 year chart is horrible

    the cramer fade doesn;t work on lightning round.
  7. closed out my position at an $82 loss. (200 shares)

    Fuck MRO. dead money.
  8. aresky


    I think today there is just some profit taking after 3 up days.
    MRO is significantly undervalued.
  9. Daal


    you need more staying power, this company is at very low valuation, you need to have a 3 year horizon to cash in
  10. cowf


    #10     May 7, 2008