On Jun 10, 2013, the shares of Murphy Oil Corporation (MUR) hit a 52-week high of $66.28. The company reported favorable earnings surprises in three of the last four quarters with an average beat of 20.6%.
We consider Murphy Oil’s strong financial position and significant progress in offshore drilling activities in the domestic as well as international locations to be catalysts for its future performance.
Yesterday, Murphy Oil made a gas discovery in the Browse Basin of offshore Western Australia. The non-operated Bassett West-1 well has encountered more than 20 feet (6.1 meter) of net gas condensate pay. The company’s effort toward strengthening domestic operations along with expanding international footprint is appreciable.
Murphy Oil has solid liquidity position with cash balance $1.1 billion as of Mar 31, 2013 and net cash provided by operating activities of $0.9 billion during the first three months of 2013. This financial comfort enables the company to invest $4.3 billion in 2013 for several development projects while following steady exploration strategy.
Apart from investing in several projects, Murphy Oil’s liquidity also allows it to maximize shareholders’ wealth through regular dividend payments and share buyback. The company currently has share repurchase authorization of up to $1 billion.
Additionally, Murphy Oil plans to sell its UK upstream operations and spin-off the U.S. downstream subsidiary, Murphy Oil USA, Inc. to an independent entity. The divestiture will allow the company to have a deeper focus on its existing properties and add new ones to drive further value. The spin-off will enable both the organizations to allot resources and redeploy existing capital as per their own priorities and market conditions.
Murphy Oil’s second-quarter 2013 earnings guidance ranges from $1.50 to $1.65 per share. The Zacks Consensus Estimate for second-quarter is $1.56 per share. We expect the company’s long-term earnings growth to be 11.5% on the back of sales growth of 5.7%.
Murphy Oil currently has a Zacks Rank #3 (Hold). The other stocks in the sector that are worth considering include Abraxas Petroleum Corp. (AXAS) with a Zacks Rank #1 (Strong Buy), and Anadarko Petroleum Corp. (APC) and Encana Corporation (ECA) with a Zacks Rank #2 (Buy).
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