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Analyst Blog

On Sep 17, 2013, we have maintained our Neutral recommendation on petroleum company Murphy Oil Corp. (MUR - Analyst Report). The company currently has a Zacks Rank #3 (Hold).

Why the Reiteration?

In second-quarter 2013, Murphy Oil reported mixed results with earnings beating the Zacks Consensus Estimate, while revenues missing the same. On a year-over-year basis, the top and bottom line improved primarily based on favorable results from the Exploration and Production and Corporate segments, partially offset by a decline in contribution from the Refining and Marketing segment.

Murphy Oil has changed its business strategy, focusing more on E&P activities. Adjustments in the business strategy propelled the company to spin off its U.S. retail marketing division, now trading on the New York Stock Exchange under the name of Murphy USA Inc. (MUSA - Snapshot Report). The spin-off will enable both the companies to reallocate their resources efficiently and redeploy existing capital as per their market conditions and priorities.

Murphy Oil’s cash and cash equivalents were $1 billion as of Jun 30, 2013 and net cash provided by operating activities was $0.9 billion during the second quarter of 2013. A solid cash flow generation capacity and cash balance  enabled the company to invest $1 billion in second-quarter 2013, primarily for exploration and production (E&P) activities in the U.S., Australia, Africa and Asia. These projects will play an important role in boosting the company’s upcoming performance while improving its reserve level.

However, prices of Murphy Oil’s primary products are often quite volatile. An economic slowdown can affect the worldwide demand for energy commodities, resulting in reduced prices of oil, natural gas and refined products. The volatility in commodity prices can significantly affect the company’s operating results.

Other Stocks to Consider

The other stocks in the sector that are worth considering include PostRock Energy Corp. and Braskem S.A. (BAK - Snapshot Report), each with a Zacks Rank #2 (Buy).

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