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Marathon Oil Upped to Buy

Zacks Equity Research

On Oct 8, Zacks Investment Research upgraded leading integrated oil and gas firm, Marathon Oil Co. (MRO) to a Zacks Rank #2 (Buy).

Why the Upgrade?

Marathon oil is in excellent financial health, which allows it to capitalize on investment opportunities with the option to make strategic acquisitions. We remain positive on the outlook for Marathon post-split, as it holds the promise of unlocking significant value. In 2011, Marathon spun-off of its refining/sales business into a separate, independent and publicly traded company Marathon Petroleum Corp. (MPC).

The last two months has seen a lot of activity for Marathon Oil. We believe that these should positively impact the company’s growth and earnings in the near to long term.

On Oct 7, Marathon Oil received permission from the Regional Government of Kurdistan to develop oil from the Atrush block. The company will likely start production for the first phase of the project by the first half of 2015.

Last month, the company announced plans to buy back common shares worth $1 billion. This is expected to create long-term value for shareholders.

The company also provided an update relating to its asset sale and purchase activities. It has inked a production sharing and joint agreement contract with Sonangol EP. Per the contract, Marathon Oil will divest its 10% ownership in Block 32 for a consideration of roughly $590 million. Additionally, Marathon Oil plans to buy roughly 4,800 acres of land in the Texas-based Eagle Ford shale field for a consideration of $97 million.

With next quarter earnings around the corner on Nov 4, we are hopeful of the company’s performance. The Zacks Consensus Estimate for the third quarter has moved up 3 cents (or 4%) to 79 cents over the last 60 days. The Zacks Consensus Estimate for the full year is currently pegged at $2.74, after moving up 10 cents (or 3.8%) in the same time frame.
Other Stocks That Warrant a Look

In addition to Marathon Oil, one can also consider other energy sector stocks such as Dril-Quip, Inc. (DRQ) and Stone Energy Corp. (SGY) as attractive investment opportunities. Both these stocks currently hold a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on MRO
Read the Full Research Report on MPC
Read the Full Research Report on DRQ
Read the Full Research Report on SGY

Zacks Investment Research