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Is Marathon Oil (MRO) Stock a Buy Before Earnings Season?
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Oil/Energy has been the best-performing S&P 500 sector in 2022 and Marathon Oil (MRO - Free Report) is one of the top stocks in the space. As the price of oil has rocketed, so has MRO's share price, which soared to a new 52-week high of $33.24 on May 31.
The geopolitical crisis and a spike in demand not only pushed up crude prices to more than $100 a barrel but also sparked off a 32.3% year-to-date gain in the Marathon stock through Friday – the ninth highest on the S&P 500. Since the start of 2021, the company's share price has soared 225.6%.
What’s Behind Marathon’s Share Price Gains?
Let's dig into this a little more.
The upstream energy company’s oil and gas operations are mainly concentrated in the United States (including Oklahoma, Eagle Ford, Bakken and Northern Delaware) and Equatorial Guinea. It boasts some 10 years of North American unconventional inventory at a breakeven price of less than $40 per barrel that extends to 15 years if the breakeven points are in the $40-$50 range. Overall, the wells drilled by Marathon have extremely low oil price breakeven costs and need oil prices of just $35 a barrel to be profitable.
As far as earnings are concerned, Marathon came up with a strong first quarter in May. The Houston, TX-based company reported adjusted earnings per share of $1.02, outpacing the Zacks Consensus Estimate of 98 cents. The bottom line also improved significantly from the year-earlier quarter’s profit of 21 cents per share. Results were favorably impacted by stronger liquid realizations and solid domestic production. As a matter of fact, MRO has an excellent earnings surprise history. It surpassed estimates in each of the last four quarters, delivering an earnings surprise of 23%, on average.
In its Q1 earnings release, MRO reiterated that its capital budget is aimed at maintaining average production for 2022 at the year-ago levels. However, the company will be increasing volumes from its high-margin U.S. resource plays.
Marathon is using the excess cash from a supportive environment to reward shareholders with dividends and buybacks. As part of that, MRO has executed $1.6 billion of share repurchases since October 2021 and has hiked its base dividend for five consecutive quarters.
Meanwhile, Marathon lowered its gross debt by $1.4 billion in 2021, comfortably covered by the year's free cash flow of $2.2 billion. It’s also important to remember that the company’s major debt maturities mostly fall after 2025. As such, there does not appear to be much near-term risk on this front.
Looking Ahead
Following the dramatic surge in Marathon’s stock price, investors might be wondering whether the oil and gas finder has enough firepower left to keep chugging along. While there are some apprehensions that the company may have gotten too far ahead of itself, Marathon’s robust operational metrics and no material debt maturities this year suggest strong long-term cash flows that should support higher price points for its shares.
Despite the incredible revaluation of Marathon shares since 2021, the company is still cheap. On the basis of the trailing 12-month EV/EBITDA ratio — the multiple that most analysts use for the oil and gas exploration and production industry — Marathon is currently trading at 5.11X, lower than the industry average of 5.26X.
Finally, analysts have also raced to up their EPS guidance. Estimates for full-year 2022 earnings have risen 9.6% in the past 60 days — from $4.71/share to $5.16/share. Those revisions have earned MRO a Zacks Rank #2 (Buy). The Zacks Consensus Estimate calls for a surge of 228.7% in Marathon’s 2022 adjusted earnings. At the top end, its revenues are expected to rise 47.7% higher this year.
In addition to the favorable rank, Marathon enjoys a Zacks Value Style Score of A, Growth of A, and Momentum of B to help it round out with a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
So, if you want to capitalize on oil’s bull run, Marathon might still be the stock to place your bets on.
Other Energy Stocks to Buy
Apart from MRO, investors interested in the energy sector might consider Cheniere Energy (LNG - Free Report) , SilverBow Resources (SBOW - Free Report) and Valero Energy (VLO - Free Report) . Each of the companies sports a Zacks Rank of 1.
Cheniere Energy: Cheniere Energy is valued at some $32.5 billion. The Zacks Consensus Estimate for LNG’s 2022 earnings has been revised 39.9% upward over the past 90 days.
Cheniere Energy, headquartered in Houston, TX, delivered a 120.1% beat in Q1. LNG shares have gained around 49.9% in a year.
SilverBow Resources: SilverBow Resources is valued at around $505.7 million. SBOW reported EPS of $2.79 in May, reflecting a 25.1% surprise over consensus.
SBOW beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 20.3%, on average. SilverBow shares have gained 28.1% in a year.
Valero Energy: VLO beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 84.3%, on average.
Valero Energy is valued at around $43.7 billion. VLO has seen its shares gain around 47.1% in a year.
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Is Marathon Oil (MRO) Stock a Buy Before Earnings Season?
Oil/Energy has been the best-performing S&P 500 sector in 2022 and Marathon Oil (MRO - Free Report) is one of the top stocks in the space. As the price of oil has rocketed, so has MRO's share price, which soared to a new 52-week high of $33.24 on May 31.
The geopolitical crisis and a spike in demand not only pushed up crude prices to more than $100 a barrel but also sparked off a 32.3% year-to-date gain in the Marathon stock through Friday – the ninth highest on the S&P 500. Since the start of 2021, the company's share price has soared 225.6%.
What’s Behind Marathon’s Share Price Gains?
Let's dig into this a little more.
The upstream energy company’s oil and gas operations are mainly concentrated in the United States (including Oklahoma, Eagle Ford, Bakken and Northern Delaware) and Equatorial Guinea. It boasts some 10 years of North American unconventional inventory at a breakeven price of less than $40 per barrel that extends to 15 years if the breakeven points are in the $40-$50 range. Overall, the wells drilled by Marathon have extremely low oil price breakeven costs and need oil prices of just $35 a barrel to be profitable.
As far as earnings are concerned, Marathon came up with a strong first quarter in May. The Houston, TX-based company reported adjusted earnings per share of $1.02, outpacing the Zacks Consensus Estimate of 98 cents. The bottom line also improved significantly from the year-earlier quarter’s profit of 21 cents per share. Results were favorably impacted by stronger liquid realizations and solid domestic production. As a matter of fact, MRO has an excellent earnings surprise history. It surpassed estimates in each of the last four quarters, delivering an earnings surprise of 23%, on average.
In its Q1 earnings release, MRO reiterated that its capital budget is aimed at maintaining average production for 2022 at the year-ago levels. However, the company will be increasing volumes from its high-margin U.S. resource plays.
Marathon is using the excess cash from a supportive environment to reward shareholders with dividends and buybacks. As part of that, MRO has executed $1.6 billion of share repurchases since October 2021 and has hiked its base dividend for five consecutive quarters.
Meanwhile, Marathon lowered its gross debt by $1.4 billion in 2021, comfortably covered by the year's free cash flow of $2.2 billion. It’s also important to remember that the company’s major debt maturities mostly fall after 2025. As such, there does not appear to be much near-term risk on this front.
Looking Ahead
Following the dramatic surge in Marathon’s stock price, investors might be wondering whether the oil and gas finder has enough firepower left to keep chugging along. While there are some apprehensions that the company may have gotten too far ahead of itself, Marathon’s robust operational metrics and no material debt maturities this year suggest strong long-term cash flows that should support higher price points for its shares.
Despite the incredible revaluation of Marathon shares since 2021, the company is still cheap. On the basis of the trailing 12-month EV/EBITDA ratio — the multiple that most analysts use for the oil and gas exploration and production industry — Marathon is currently trading at 5.11X, lower than the industry average of 5.26X.
Finally, analysts have also raced to up their EPS guidance. Estimates for full-year 2022 earnings have risen 9.6% in the past 60 days — from $4.71/share to $5.16/share. Those revisions have earned MRO a Zacks Rank #2 (Buy). The Zacks Consensus Estimate calls for a surge of 228.7% in Marathon’s 2022 adjusted earnings. At the top end, its revenues are expected to rise 47.7% higher this year.
In addition to the favorable rank, Marathon enjoys a Zacks Value Style Score of A, Growth of A, and Momentum of B to help it round out with a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
So, if you want to capitalize on oil’s bull run, Marathon might still be the stock to place your bets on.
Other Energy Stocks to Buy
Apart from MRO, investors interested in the energy sector might consider Cheniere Energy (LNG - Free Report) , SilverBow Resources (SBOW - Free Report) and Valero Energy (VLO - Free Report) . Each of the companies sports a Zacks Rank of 1.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Cheniere Energy: Cheniere Energy is valued at some $32.5 billion. The Zacks Consensus Estimate for LNG’s 2022 earnings has been revised 39.9% upward over the past 90 days.
Cheniere Energy, headquartered in Houston, TX, delivered a 120.1% beat in Q1. LNG shares have gained around 49.9% in a year.
SilverBow Resources: SilverBow Resources is valued at around $505.7 million. SBOW reported EPS of $2.79 in May, reflecting a 25.1% surprise over consensus.
SBOW beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 20.3%, on average. SilverBow shares have gained 28.1% in a year.
Valero Energy: VLO beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 84.3%, on average.
Valero Energy is valued at around $43.7 billion. VLO has seen its shares gain around 47.1% in a year.