Marathon Oil Looks More Undervalued than Two-Thirds of Its Peers

As markets have again taken back gains for the year, we call attention to the investment value in Marathon Oil (MRO) among 24 large cap buy recommendations. The people at the company have all changed since we first recommended the U.S. Integrated producer in 1973. Yet the functional emphasis continues to be oil production, natural gas and refining/marketing, or downstream.

We estimate an enticing present value of $54 a share compared to current stock price of $29, making MRO stock more undervalued than two-thirds of its peers. In the quarters ahead, the company offers volume growth in oil, a step up in cash flow from a nearly completed refinery expansion and exposure to new natural gas supply from shale formations in Oklahoma and Louisiana.

Meanwhile, for investors fortified with patience and rainy day reserves for any unexpected downside, we like the upside prospects for the industry. Oil for delivery over the next six years settled on June 22 at $78 a barrel, defining an uptrend, as it is above the 40-week average of $72 a barrel. The price is also above $75, which underlies our estimates of present value.

Though six-year natural gas has fallen back below its 40-week average, the new supply from shale formations weighing on the price is a long-term positive that makes the advantages of the clean fuel more obvious to our political leaders. Finally, the outlook for refined oil products improves with the outlook for global growth.

Originally published on June 23, 2009

Comments

[A Barrel Full:]

I agree with the sentiment about gas prices.

Long term, the low prices will drive demand, they will also drive infrastructure investments, to get all this gas to consumers.

Jul 13 09:32 AM

[skwestorange:]

Wonder what the per barrel oil price and per bcf price of gas are in your present value calculations.

Jul 13 01:52 PM

[BigOlDave:]

Dr. Berg,

Which companies use BDE?

Dave

Jul 13 11:47 PM