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Why Is Marathon Oil (MRO) Up 20% Since Last Earnings Report?

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A month has gone by since the last earnings report for Marathon Oil (MRO - Free Report) . Shares have added about 20% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Marathon Oil due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Marathon Oil Reports Better-Than-Expected Q1 Earnings

Marathon Oil Corporation reported first-quarter 2021 adjusted earnings per share of 21 cents, outpacing the Zacks Consensus Estimate of 13 cents. The bottom line also reversed the year-earlier quarter’s loss of 16 cents per share. Results were favorably impacted by a stringent cost control and better-than-expected contribution from its International E&P segment. Precisely, the International E&P reported a profit of $50 million, beating the respective Zacks Consensus Estimate of $30.9 million.

However, Marathon Oil reported revenues of $1.07 billion that missed the Zacks Consensus Estimate of $1.09 billion and further fell 12.9% year over due to lower production.

Segmental Performances

This Texas-based energy explorer’s total net production (from U.S. and International units) in the quarter under review came in at 345,000 barrels of oil equivalent per day (BOE/d) compared with 422,000 BOE/d in the year-ago period.

U.S. E&P:  This U.S. upstream unit reported earnings of $212 million against a loss of $20 million in the year-ago period on improved oil price realizations.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $55.38 per barrel were above the year-earlier level of $44.23. Moreover, natural gas liquids average price realizations skyrocketed 140.1% to $23.94 a barrel. Additionally, average realized natural gas prices were up 294.4% year over year to $6.31 per thousand cubic feet.

Production costs were $4.46 per BOE, representing a 3.7% year-over-year decline.

Net production of 276,000 BOE/d decreased from 340,000 BOE/d in first-quarter 2020. The total U.S. output comprised 58% oil or 160,000 barrels per day (bpd), down 22.7% year over year.

The lower year-over-year production, especially from Eagle Ford and Oklahoma dragged down the company’s quarterly performance. Notably, Oklahoma output came in at 53,000 BOE/d, reflecting a 28.4% fall from the year-ago level. The Eagle Ford region recorded production of 77,000 BOE/d, down 32.5% from the level in first-quarter 2020. On a somewhat positive note, output from Bakken was 110,000 BOE/d, in line with the year-ago quarter.

International E&P:  The segment, which explores and produces oil and gas in Equatorial Guinea, reported earnings of $50 million, against the year-ago period’s loss of $1 million, attributable to higher realized oil prices.

Marathon Oil reported production available for sale of 69,000 BOE/d, down from 82,000 Boe/d in first-quarter 2020.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $44.13 per barrel reflected a 19.7% rise from the year-earlier quarter. Natural gas and natural gas liquids’ average price realizations came in at 24 cents per thousand cubic feet and $1 a barrel, respectively, same as reported in the corresponding period of 2020.

Financials

Total costs in the quarter were $954 million, down $261 million from the prior-year period. Marathon Oil reported an operating cash flow of $622 million in the first quarter, down from $701 million a year ago.

As of Mar 31, it had cash and cash equivalents worth $1.1billion and a long-term debt of $5.5 billion. Debt-to-capitalization ratio of the company was 31.5.

The company met its initial gross debt-reduction goal of $500 million and is now aiming to lower another $500 million in gross debt by 2021, hiking the overall debt-reduction target to at least $1 billion.

Marathon Oil also increased its quarterly base dividend above 30% from 3 cents to 4 cents per share.

2021 Guidance

Marathon Oil has set a capital budget of $1 billion for this year, down from $1.2 billion it spent in 2020. The company is envisions production in the range of 330,000-350,000 BOE/d, 11% below the 2020 production at the midpoint. Further, Marathon Oil expects oil volumes in the band of 169,000-175,000 barrels per day (91% at the midpoint).

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 16.73% due to these changes.

VGM Scores

At this time, Marathon Oil has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Marathon Oil has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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