Now Is The Time To Buy Marathon, Before Its Stock Price Increases

| About: Marathon Oil (MRO)
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Marathon Oil (NYSE:MRO) is one of the most appealing US-based independent E&Ps for a near-term investment. It has comparable metrics and is available at a substantial discount to the larger E&Ps. It also has a diverse international portfolio and it's due for a significant uptick after the commodity markets rebound, as its current assets are under-earning by around 40%. Current shareholders should hold long term and interested investors should buy soon before the next earnings release or before the US fiscal policy and the commodity markets stabilize. Marathon's stock has been posting growth throughout 2012 and is starting to outperform its peers. If China's future boe demand doesn't meet expectations or if the shift in the industry leads to an oversupply in liquid production similar to natural gas, there could be adverse effects felt by all the E&Ps in the medium term.

Apache (NYSE:APA), EOG Resources (NYSE:EOG), Devon Energy (NYSE:DVN) and Noble Energy, Inc. (NYSE:NBL) are the independent US-based E&Ps with international portfolios that are most comparable to Marathon Oil. Marathon's price per share is around $30, all of these other E&P trade for over $60 per share; EOG Resources is the highest at around $114 per share. Marathon Oil's market cap is around $12 billion; Apache's is the highest at around $33.8 billion, while Noble's $16.4 billion market cap is the lowest. Marathon's price is around 12 times earnings, both Apache and Devon Energy's price is around 10.3 times earnings. Noble Energy's price is around 25.4 times earnings and EOG Resources is around 22.3 times earnings. Apache Corp, Devon Energy, and Marathon Oil's price-to-book ratios are all below 1.2, Noble's is around 2.1, and EOG Resources is around 2.3.

Marathon's 1.36 price-to-sales ratio and $2.49 EPS are the lowest among these firms. Noble's 4.14 price-to-sales ratio and Apache's $8.35 EPS are the highest among the E&Ps. Marathon's 2% sales deficit in the past quarter, YOY is better than Devon Energy's 20% deficit or Apache's 8.4% deficit, respectively. Marathon's ROE is around 10.2%, its operating margin is around 35.4% and its profit margin is around 11.4%. Apache's 11.9% ROE, 37% operating margin and Devon Energy's 22% profit margin are the highest among these E&Ps. Marathon Oil's 0.30 debt-to-equity ratio is the lowest among these E&Ps, Noble Energy's 0.57 is the highest. Marathon Oil, EOG Resources and Apache each have an annualized dividend around $0.68, Devon is around $0.80 and Noble is around $0.88.

Marathon's short ratio is around 1.5 and is the lowest among these E&Ps. Its beta score is usually over one and is close to Apache's. Marathon's average daily volume is around 7 million and its relative volume is around 1.1, these are the highest among the E&Ps. For the past year, Marathon Oil stock has outperformed all the other E&Ps except EOG Resources. Marathon's stock has been steadily increasing while EOG's has been decreasing over that time. Marathon's stock is up 3.8% YTD through October and up 9.5% in the past month. EOG Resources is up 16.5% YTD through late October and up 1.5% in the past month. Marathon Oil's stock has increased around 10.3% since its last earnings release.

Marathon Oil's recent earnings release showed second quarter sales and operating revenues totaled $3.78 billion, increasing from $3.68 billion, YOY. Second quarter costs and expenses totaled $2.3 billion, down from $2.93 billion, YOY. Net income decreased to $393 million from $996 million, YOY. Long-term debt decreased to $4.51 billion from $4.67 billion, YOY. Marathon's E&P segment contributed $3.39 billion in revenue and $417 million towards income. The US market contributed $70 million to E&P income and international assets contributed $347 million to income. US net liquid hydrocarbon sales increased from to 93 mbbld from 72 mbbld, YOY; international net sales volumes increased to 177 mbbld from 126 mbbld, YOY. Liquid hydrocarbon average realization increased in Africa to $96.84 per bbl from $76.86 per bbl, YOY.

Resuming sales from Libya was a primary proponent for increasing international sales revenue in the second quarter 2012. The higher US revenues are primarily due to the success Marathon's had in its Eagle Ford acquisition. In the second half of 2012, Marathon will begin drilling in the Gulf of Mexico again. Marathon plans to drill 6 wells in Poland before 2013; it currently has a 52% working interest in 10 concessions and 100% working interest in one concession in the country. Marathon is transporting 70% of its Eagle Ford production by pipeline and five facilities are currently under construction. Marathon brought 72 gross wells to sale and operated 30 rigs in the second quarter, it plans to reduce its count to 18 rigs and complete 230 drilled wells by 2013. Marathon also increased its Bakken shale production volume to 27 mboed from 16 mboed, YOY.

Marathon Oil focusing on divesting a non-core asset in order to mitigate extraneous costs and limit its exposure to low natural gas prices. Analysts have upgraded Marathon to an outperform rating due to its increasing and efficient production at Eagle Ford alongside effectively managing capital. Cash flow and earning margins are expected to increase under this model; its EPS is projected to reach $4.23 by 2014. The upstream E&Ps are far more susceptible to commodity market fluctuations than the downstream spinoffs many integrated energy firms have undertaken. The larger integrated energy firms also have more expansive portfolios than the upstream E&Ps so they are more apt to hedge against the downtrodden prices in the natural gas market sector.

There has been a substantial shift towards liquids by most E&Ps and major integrated energy firms in order to mitigate losses until natural gas prices rebound. This situation could create the same over supply we see in the natural gas market if oil demand isn't up to expectations in 2013 and 2014. Oil demand is expected to increase to 89.7 mbpd from 88.8 mbpd. China is expected to account for 35% of oil demand in 2012 and 50% in 2013. Problems in the Middle East could increase oil prices, while lower demand in China could bring the prices down in the industry as 2013 progresses. Marathon offers lower investment risk at a discount price, while it offers comparable returns to its peers in the E&P industry.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.