Marathon Oil (MRO) is an oil and gas exploration and production company. Marathon's headquarters in Houston. Texas. The company has a market cap of $21.4 billion and a stock price of around $30.
Marathon's stock price is currently towards the top of its 52 week price range. A big reason for that is because the stock got a boost when Ben Bernanke announced that the Federal Reserve would be initiating a third quantitative easing program (QE3). In the month leading up to QE3, Marathon's stock price moved higher by 6%. In the two days following the QE3 announcement, Marathons stock price rose 7%. Historically, QEs push investors away from dollar based investments and towards hard assets or commodity investments. After the 2010 QE2, oil prices moved higher by $40. Another reason that Marathon's stock price has increased is because the price of oil has increased. Crude oil prices on the New York Mercantile Exchange have risen from $79.76 per barrel on the week ending on June 22nd to $99.00 per barrel for the week ending on September 14th.
I believe that it is a positive that Marathon's stock price is well above its 52 week midway point in the third week of September. I believe that it is a positive because it seems to me that oil companies' stock prices are often near their 52 week low points in the fall of the year. In the current 52 week cycle, Marathon hit a low point of $19.13 on October 4, 2011. Conversely, oil stocks usually hit their high points in the spring, when gas prices are peaking in anticipation of higher demand as a result of the summer driving season. In the last 52 week cycle, Marathon's stock price hit its high point of $35.49 on February 28th 2012. Just to further illustrate my point BP Plc's (BP) stock price hit its 52 week low of $33.62 on October 4, 2011. BP hit its 52 week high of $48.34 on March 5, 2012. While I would not predict the stock prices of major oil companies based solely on the above examples, the fall/spring stock price gap seems to be a recurring trend.
Another reason that I feel positive about Marathon is because it valuations compare favorably against its primary competitors. For instance, Marathon has a price to book ratio of 1.2 while Exxon Mobil (XOM) has a price to book ratio of 2.6, Chevron (CVX) has a price to book ratio of 1.77 and Conoco Phillips (COP) has a price to book ratio of 1.53. It should be noted that Marathon's price to earnings ratio of 12.2 is higher than its competitors partially because of its recent stock rally. Marathon's forward price to earnings ratio is 9.2. In addition to its favorable price to book ratio Marathon's profit margin 11.86 and its operating margin 33.01 are considerably better than its competitors.
Recent News about Marathon Oil
Marathon is proving that it is serious about divesting itself from low margin low revenue assets. On August 1st Marathon's CEO Clarence Cazalot said "I'll tell you our asset divestiture program is on track, and we expect to meet or exceed our $1.5-billion to $3-billion divestiture program by the end of 2013. And you'll note in the press release that we have disclosed the potential purchase price in Alaska as being $375 million, and I would also tell you that interest in the sale of our Neptune gas plant, our 50% interest there, has been quite strong, and we'll be reviewing those bids very shortly."
In another August 1st news story, Marathon Oil announced that the Federal Trade Commission was reviewing its arrangement to sell its Alaska assets to Hilcorp Energy Corporation. A Marathon spokesperson said that the company had received a "civil investigative demand and subpoena" from the FTC, and that it has been working with the agency in the matter." The marathon spokesman went on to say that the company remains "confident that we will close the transaction, subject to completion of the necessary Government and regulatory approvals, during the fall of this year."
On June 1st Marathon oil announced that it would purchase 141,000 acres of shale property from Hilcorp Resources in the Eagle Ford shale formation in south Texas for $3.5 billion. The property has 36 completed and producing oil wells and 10 drilled oil wells that are awaiting completion.
On May 8th, Marathon Oil announced that it would "be making $767 million in new acquisitions in the Eagle Ford, funded by a recent sale of Alaska assets." The purchase would be made from Paloma partners II, and it will add 17,000 acres to Marathon's oil acreage in the south Eagle Ford Shale. The purchase of properties in the Eagle Ford basin is key to Marathon's future production plans.
Marathon Oil spun-off its refining and marketing division which it named Marathon Petroleum (MPC) in June of 2011. The spinoff was successful, and MPC's stock price is up by 47% since it first traded on June 27th 2011, in that same period of time Marathon's Oil's stock price is only up by 4%.
Marathon's stock has been on fire for the last month. It is hard to be sure if the stock price has moved higher because of QE3 or because of rising crude oil prices or because of the potential production from the Eagle Ford Shale project. But, for whatever the reason, or combination of reasons, I think that it is a good sign that the stock price is rising, and I do not believe that it will peak until the spring of 2013. Investing in the stock market is inherently risky, therefore prospective investors should do further research.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.