Marathon Oil (MRO)'s True Worth: A Comprehensive Analysis of Its Market Value
Marathon Oil Corp (NYSE:MRO) has seen a daily gain of 2.81% and a three-month gain of 22.26%. With an Earnings Per Share (EPS) (EPS) of 3.17, the question arises: is the stock fairly valued? In this article, we will conduct a comprehensive valuation analysis of Marathon Oil, aiming to provide a clear answer. We encourage you to read on for an in-depth exploration of the company's financial health, growth prospects, and intrinsic value.
Company Introduction
Marathon Oil Corp is an independent exploration and production company primarily focusing on unconventional resources in the United States. As of the end of 2022, Marathon Oil reported net proved reserves of 1.3 billion barrels of oil equivalent. The company's net production averaged 343 thousand barrels of oil equivalent per day in 2022, with a ratio of 70% oil and NGLs and 30% natural gas. With a current stock price of $27.03, Marathon Oil has a market cap of $16.40 billion. The company's GF Value, an estimation of fair value, stands at $28.43, setting the stage for a deeper exploration of Marathon Oil's value.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line on our summary page gives an overview of the fair value that the stock should ideally be traded at. It is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
Based on GuruFocus' valuation method, Marathon Oil (NYSE:MRO) appears to be fairly valued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. At its current price of $27.03 per share, Marathon Oil has a market cap of $16.40 billion, and the stock appears to be fairly valued.
Given that Marathon Oil is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Assessing the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage provide a good understanding of a company's financial strength. Marathon Oil has a cash-to-debt ratio of 0.04, which is lower than 87.81% of 1034 companies in the Oil & Gas industry. The overall financial strength of Marathon Oil is 6 out of 10, indicating fair financial health.
Profitability and Growth
Companies that have consistently been profitable over the long term offer less risk for investors. Marathon Oil has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $6.70 billion and Earnings Per Share (EPS) of $3.17. Its operating margin is 36.6%, which ranks better than 79.98% of 984 companies in the Oil & Gas industry. Overall, the profitability of Marathon Oil is ranked 6 out of 10, indicating fair profitability.
Growth is a critical factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Marathon Oil is 20.6%, which ranks better than 72.04% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 30.3%, which ranks better than 67.67% of 829 companies in the Oil & Gas industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Marathon Oil's ROIC is 10.67 while its WACC came in at 11.92.
Conclusion
In summary, the stock of Marathon Oil (NYSE:MRO) appears to be fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 67.67% of 829 companies in the Oil & Gas industry. To learn more about Marathon Oil stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
