Marathon Oil (MRO)'s True Worth: A Comprehensive Analysis of Its Market Value
Marathon Oil Corp (NYSE:MRO) recently experienced a daily loss of -3.42%, following a 3-month gain of 12.85%. With an Earnings Per Share (EPS) (EPS) of 3.17, this article aims to answer the question: is Marathon Oil fairly valued? In the following analysis, we'll delve into the company's valuation, financial strength, profitability, and growth to provide an informed perspective.
Company Overview
Marathon Oil is an independent exploration and production company, primarily focusing on unconventional resources in the United States. As of the end of 2022, the company reported net proved reserves of 1.3 billion barrels of oil equivalent. 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 $25.84 and a GF Value of $28.45, Marathon Oil has a market cap of $15.60 billion, indicating that the stock is fairly valued.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock. It's calculated based on historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
Marathon Oil (NYSE:MRO) is estimated to be fairly valued based on GuruFocus' valuation method. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. Because 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
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before purchasing shares. Marathon Oil has a cash-to-debt ratio of 0.04, ranking worse than 87.91% of 1026 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Marathon Oil's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Marathon Oil has been profitable for 6 out of the past 10 years. Over the past twelve months, the company had a revenue of $6.70 billion and an EPS of $3.17. Its operating margin is 36.6%, which ranks better than 80.08% of 979 companies in the Oil & Gas industry. Overall, the profitability of Marathon Oil is ranked 6 out of 10, indicating fair profitability.
Growth is one of the most crucial factors in a company's valuation. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Marathon Oil is 20.6%, which ranks better than 71.86% of 860 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 30.3%, which ranks better than 67.55% of 826 companies in the Oil & Gas industry.
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Marathon Oil's ROIC was 10.67 while its WACC came in at 12.01.
Conclusion
In conclusion, the stock of Marathon Oil (NYSE:MRO) is estimated to be fairly valued. The company's financial condition and profitability are fair, and its growth ranks better than 67.55% of 826 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.
