On Nov 18, 2016, we issued an updated research report on Murphy Oil Corporation (MUR - Free Report) . The company’s systematic capital investments and cost-saving initiatives bode well for its long-term growth. However, stringent regulations, volatile commodity prices and a highly competitive industry are headwinds.
Murphy Oil’s third-quarter loss was narrower than the Zacks Consensus Estimate while total revenue beat the same by 4.8%. On a year-over-year basis, however, quarterly revenues tumbled 30% to $437.5 million. The top-line deterioration was primarily due to lower exploration and production (E&P) revenues from the company’s U.S. and global operations.
Murphy Oil’s cost-saving initiatives have already started yielding returns and will likely continue to do so through the foreseeable future. Thanks to these initiatives, the company was able to lower lease operating cost per Boe by 5.4% and general & administrative expenses by 24% in the first nine months of 2016.
The company continues to pursue E&P and development activities in the U.S. and other international locations. It will invest $620 million in 2016, out of which 79% will be directed toward field development & development drilling. These investments are allowing the company to increase production from its global asset portfolio.
However, revenues put up a dismal performance in the third quarter primarily due to the ongoing softness in commodity prices. Despite the improvement in commodity prices in the second quarter after the two-year long slump, reports of resumed drilling added to the elevated inventory level woes, causing prices to crash yet again from the $50 mark.
Moreover, Murphy Oil operates in highly competitive environments, which could affect its profitability and hinder future developments. The company faces strong competition from major integrated oil companies, state-owned foreign oil companies, independent producers of oil and natural gas and independent refining companies.
Zacks Rank & Key Picks
Murphy Oil currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include Diamondback Energy, Inc. (FANG - Free Report) , Noble Energy (NBL - Free Report) and SM Energy Company (SM - Free Report) . Diamondback Energy currently sports a Zacks Rank #1 (Strong Buy), while both Noble Energy and SM Energy carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Diamondback Energy, Noble Energy and SM Energy Company have each surpassed earnings estimates by a respective 54.29%, 68.18% and 41.27% in the last reported quarter.
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