Marathon Oil Stock: Increasing Crude Prices, Strong Financials

Marathon Oil (MRO) is an oil exploration and production company, with resource plays in the U.S. and overseas.

Marathon Oil has benefited from the increasing price of WTI crude oil, which is being caused by disruptions due to the Ukraine War. The company reported stellar financial results for Q4 and FY 2021.

Marathon Oil’s stock price has been on a long one-year uptrend with a 156% increase. I expect financial performance and stock price uptrend to continue over the next year. I’m bullish on Marathon Oil.

Operations

Marathon Oil has oil wells in North Dakota (Bakken), New Mexico (Northern Delaware Basin), Texas (Eagle Ford), and Oklahoma (STACK/SCOOP).

In the U.S., Marathon Oil explores, produces, and markets crude oil and natural gas. The company owns majority interests in off-shore operations in Equatorial Guinea. The company explores, produces, and markets gas and natural gas from its Guinea operations. It also sells products manufactured from natural gas, for instance methanol.

During Q4 2021, the company reported production of 181,000 barrels of oil per day and 353,000 barrels of oil equivalent per day. For the full-year 2021, the company reported oil production of 173,000 barrels of oil per day and 348,000 barrels of oil-equivalent per day. Marathon Oil forecasts similar oil output for 2022.

Q4 2021 Financial Performance

The company reported $1.738 billion in revenues for Q4 2021, representing a 110% increase year-over-year and a record high over at least the last eight quarters.

The company beat expectations on EPS and revenue. Marathon Oil reported Q4 2021 free cash flow of $898 million and full-year free cash flow of $2.2 billion. The company is committed to returning this cash flow to its investors via dividend payments, and stock buyback programs.

The company’s financials have greatly improved over the last two years. Annual revenue for 2021 was $5.6 billion compared to $3.1 billion during the previous year.

The revenue estimate for Q1 2022 is $1.8 billion. For 2022, at $80/bbl WTI, the company expects to generate $3 billion or more in free cash flow for the year. The company forecasts similar financial performance for the next year.

Stock Price Uptrend

The company’s stock price is trading above its 20-, 50-, and 200-day moving averages. The price has gained 156% over the last 12 months, and 58% over the last six months.

The stock benefits from high institutional ownership, with 79% of its shares being held by large institutions. The stock is currently experiencing short-squeeze conditions, with more than 99% of its outstanding shares on float.

The stock price has recently hit its 52-week high of $27.71. The company and its stock price are currently undervalued at 3.27x NTM EV/revenue. There is room for the stock price to continue its uptrend.

Wall Street’s Take

Marathon Oil has a Moderate Buy consensus rating on TipRanks, with 11 Buys, three Holds, and one Sell assigned over the past three months.

The average Marathon Oil price target of $30.93 suggests 18.6% upside potential.

Conclusion

With the Ukraine War causing global oil disruptions, oil stocks have experienced heavy uptrend over the last few months. Marathon Oil is at the lead of the pack.

The company’s stock price is currently undervalued compared to the company’s financial performance. Marathon Oil expects its financial performance to increase over the next year, as well as its free cash flow.

Large institutional ownership of the stock indicates strong investor sentiment and a continuation of good financial performance.

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