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We have maintained our Neutral recommendation on Murphy Oil Corporation . The company currently has a Zacks Rank #3 (Hold).

Why the Reiteration?

In the fourth quarter and full year of 2012, Murphy Oil’s earnings per share and revenues surpassed the Zacks Consensus Estimates. The outperformance was primarily attributable to significant improvement in the Exploration and Production, and Refining and Marketing segments, higher crude oil sales volume and a decline in exploration expenses.

Murphy Oil plans to sell its UK upstream businesses and spin-off its U.S. downstream subsidiary, Murphy Oil USA, Inc. to an independent entity. The divestiture will let the company to have a deeper focus on its existing assets and add new ones to drive further value, and the spin-off will enable both the companies to assign resources and redeploy existing capital as per their own market conditions and priorities.

In addition, we believe that Murphy Oil’s significant progress in offshore drilling activities in the Eagle Ford Shale and the signing of a new agreement with Wal-Mart Stores Inc. for new store additions will act as a positive catalyst for its future growth.

However, uncertainty associated with drilling results and volatile oil prices could challenge the company’s forthcoming financial results.

The current Zacks Consensus Estimate for first-quarter 2013 of 90 cents is at the upper end of the company’s earnings guidance of 55 cents to 90 cents. This earnings projection takes into account the loss of approximately $10 million from downstream operations and total exploration expense of $70–$140 million.

Other Stocks to Consider

Other stocks in the sector that are presently doing favorable business include PostRock Energy Corporation and Range Resources Corporation . Both stocks carry a Zacks Rank #1 (Strong Buy).

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