Marathon Oil Corp.
) hit a 52-week high of $36.68 on May 20. In fact, the Houston,
Texas-based energy exploration and production firm has seen its
stock price climb some 12% since the beginning of the year. This
price appreciation can be attributed to its attractive reserve
base and solid project pipeline.
Why the Bullishness?
Marathon Oil's strong inventory of development projects (in
liquid rich resource plays and other focus areas such as
Indonesia, the Kurdistan Region of Iraq and Poland) provides for
visible production growth over the coming years. We believe that
management's guidance for a 7-10% annual production growth rate
for 2013 is on the conservative side.
Management has not been shy of divesting assets, particularly
those that do not fit into the company's long-term growth plan.
During the last two years, Marathon Oil has sold approximately
$1.3 billion worth of non-core oil and gas properties around the
world, thereby freeing up capital to concentrate on its
longer-term high-grade prospects.
Finally, Marathon Oil - which spun off its refining/sales
business into a separate, independent and publicly traded company
Marathon Petroleum Corp.
) in 2011 - remains in excellent financial health with net
debt-to-capital ratio of 24%, which helps it to capitalize on
investment opportunities with the option to make strategic
acquisitions. Marathon Oil also pays a growing dividend that
currently yields 1.9%.
However, we think the current valuation is fair and adequately
reflects the partnership's future growth prospects. Moreover,
Marathon Oil will take some time to fully absorb the outcome of
the spin-off of its downstream business, which is expected to
further limit its ability to generate positive earnings
This accounts for Marathon Oil's current Zacks Rank #3 (Hold),
implying that it is expected to perform in line with the broader
U.S. equity market over the next one to three months.
Stocks to Consider
With Marathon Oil shares trading at all-time highs, any upside
from here may be limited. Meanwhile one can look at
Natural Gas Services Group Inc.
PowerSecure International Inc.
) as attractive investments. These energy equipment suppliers -
sporting a Zacks Rank #2 (Buy) - offer value and are worth
accumulating at current levels.
MARATHON PETROL (MPC): Free Stock Analysis
MARATHON OIL CP (MRO): Free Stock Analysis
NATURAL GAS SVC (NGS): Free Stock Analysis
POWERSECURE INT (POWR): Free Stock Analysis
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