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Marathon Oil's DCF: Why The Stock Is Getting Cheaper

Aug. 02, 2021 2:48 PM ETMarathon Oil Corporation (MRO)14 Comments


  • Marathon Oil Corporation is an oil exploration and production company with resource plays in the Bakken in North Dakota, STACK, and the Eagle Ford in Texas among other regions.
  • The rights to produce the reserves are worth many dollars. If the oil price increases, the rights will be worth much more.
  • Like many other analysts, I believe that MRO will pay its debt in 2022. The reduction in debt will most likely enhance the FCF.
  • In my base case scenario, with long-term growth of 4%-5.5% and a WACC of 11%, I obtained an implied price of $14.7-$18.7. Notice that MRO currently sells at $10-$12.
  • The FCF will most likely be around $1.8 billion and $739 million in 2021 and 2025, respectively. My numbers are not far from that given by other analysts.

Spending money.
Dmitry Fisher/iStock via Getty Images

Marathon Oil (NYSE:MRO) offers an upside potential in the stock price as well as limited downside risk. In my base case scenario, using market estimates and a WACC of 11%, the implied share price is $14.7-$18.7. Traders are

This article was written by

I am an financial advisor living in Europe. I conduct due diligence for clients across multiple sectors. I hold more than 15 years of expertise.I only write about my opinion. Investing in securities involves risk of loss that readers should be prepared to bear. No investment process is free of risk; no strategy or risk management technique can guarantee returns or eliminate risk in any market environment.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of MRO either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (14)

MRO appears to be a Huge cashflow machine for the next several years. Due to the recent paydown of the $900 million debt maturity for 2025, their next significant maturity is $1 billion in 2027.

MRO will be returning capital to shareholders in the form of (1) small increases in the Base Dividend, (2) variable dividends and (3) equity buybacks. Based in comments from management, I expect equity buybacks to begin in the 4th qtr and all through 2022-2023.

Hedges will be used, but, they prefer hedges that have a positive slope for future periods. That said, I doubt they get greedy and I expect to see some additional 2022 hedges in the upper $60's for crude and at least $3.50 for nat gas--looking at the 2022 strip to protect their cash flow assumptions.

This stock is cheap. Once the buybacks begin--and I expect many energy firms to begin buybacks soon and throughout 2022, the equity prices will zoom.

Balance sheets are strong and Capex spending will stay "reasonable"
sgm8g profile picture
Anyone think it will go down further, or is it about as cheap as it's going to get? Thoughts? The reason I ask is that I've heard that Bakken in ND is completely dead right now.
Long and holding. Good article and comments.
prudent 576 profile picture
Bought MRO & WTI during the COVID crash last year. The negative sentiment and actions against fossil fuels by politicians will only send the prices soaring. MRO & WTI should easily double or triple over the next few years.
@prudent 576 Why will negative sentiment and political actions against fossil fuels send prices soaring?
cenc profile picture
Making buisness or investment decisions based on any politicians moving lips is a bad idea.

A) there is no way that in 4 years there will be sufficient EV on the road anywhere in the world to put a noticeable dent in oil demand. Perhaps, in 10 to 20 years. Even if they did try to do it, it meant 10x the oil was burned trying (e.g. electric grid overhauls, mining, etc). Oil demand has to go up, before it can go down.

B) net-zero, cabon capture, paris agreement, etc is political red herrings so politicians can pretend they are doing something, without actually doing something. The west is just outsourcing their polution to other (developing) countries, while pretending they are reducing carbon at home.

The "carbon reduction" or "stopping climate change" ship sailed back in the 1970s, and probably more like just after WWII before most of the world industrialized. Global carbon release is literally baked in now. The forest fires in California, released as much CO2 in 2018 as all the cars in California. What do you think this year will release? Throw in permafrost, ocean, CO2 sinks, see the problem?

so, yea the world is going be using a lot of oil, for a long time, because we are at the adapt or die phase, and that takes lots of energy that no other source can provide in the next decade let alone century.

meanwhile, they can try to mess with oil producers, but that just means the good ones are going to get richer as they constrain the supply more in an increasing demand environment.
MRO has huge upside torque to the rise in oil prices, and their FCF yield will be impressive. Further, the last time WTI was over $70, MRO share price was well over $20... I think that given their earnings potential, we could see $20 per share again by end of year. Long MRO.
@simonthecat "the last time WTI was over $70, MRO share price was well over $20"

Then why is is now $11 and dropping?
@GuyRien1 good point
@simonthecat Sir......(In my opinion..) Too optimistic.Stock price has major trouble clearing $12.00/sh.

Today's action is a prime example. I believe it will move slower towards $14-15 in 18-24 months...
@Monplanet Capital Management having bought in at $4 last year I hope you are right. But I think a lot of positive sentiment for oil stocks ignore the fact that the industry is in long-term decline due to political headwinds
@GuyRien1 Also due to inability to make a profit in these shale plays.
@BooBooGao MRO will be very profitable this year.
@simonthecat question is, for who…
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