On May 20, 2013, the shares of Murphy Oil Corporation (MUR) climbed to its 52-week high of $65.68 primarily due to the company’s strong financial position and significant progress in offshore drilling activities in the Eagle Ford Shale. We believe these catalysts will likely enhance its future performance.
Murphy Oil primarily owns upstream focused properties. Though the company’s asset base clearly has a sizable refining footprint, we believe its future growth will also be driven by robust exploration program. Murphy Oil’s exploration line up has provided it with a good production profile, which translates into solid future growth opportunities.
The company 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 Murphy Oil to have a deeper focus on its existing assets and add new ones to drive further value. The spin-off will enable both the companies to assign resources and redeploy existing capital as per their own market conditions and priorities.
Murphy Oil’s cash balance as of Mar 31, 2013 was $1.1 billion and net cash provided by operating activities during the first three months of 2013 was $0.9 billion. Strong financial position enables the company to invest $4.3 billion in 2013 for several development projects.
Apart from investment in growth projects, Murphy Oil’s strong liquidity also allows it to improve shareholder value through regular dividend payments and share buyback. Currently, the company has share repurchase authorization of up to $1 billion.
Murphy Oil’s second-quarter 2013 earnings guidance ranges from $1.50 to $1.65 per share. In the year ago, the company’s earnings per share were $1.52. The Zacks Consensus Estimate for second-quarter is $1.45 per share. We expect the company’s long-term earnings growth to be 11.5%.
Murphy Oil currently has a Zacks Rank #3 (Hold). Apart from the company, other stocks in the sector that are worth considering include EPL Oil & Gas, Inc. (EPL) and Sandridge Mississippian Trust II (SDR) with a Zacks Rank #1 (Strong Buy) and Braskem S.A. (BAK) with a Zacks Rank #2 (Buy).
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