On Wednesday, JPMorgan (NYSE:JPM) adjusted its stance on Marathon Oil Corporation (NYSE:MRO) stock, moving its rating from Overweight to Neutral. Alongside the downgrade, the price target was set at $33.00.
The firm's analyst cited a forecast for the second quarter of 2024 that falls short of the consensus, with expected earnings per share (EPS) and cash flow per share (CFPS) of $0.69 and $1.84, respectively. These figures are slightly below the consensus estimates of $0.71 EPS and $1.89 CFPS.
The analyst's projections include a second-quarter cash flow increase due to a catch-up dividend payment from Equatorial Guinea, as Marathon Oil did not receive cash distributions in the first quarter of 2024. The expected cash flow tailwind is approximately $39 million for the second quarter. Additionally, the anticipated capital expenditure for the company is estimated at $654 million, which is about 7% higher than the street estimate of $612 million.
Marathon Oil's production volumes for the second quarter are projected to be 190 thousand barrels of oil per day (MBo/d), aligning with street estimates. This production level is supported by the company's investment program. A notable increase in production is expected from the Eagle Ford (NYSE:F) region, with volumes predicted to jump from 65 MBo/d in the first quarter to 76 MBo/d in the second quarter due to a significant number of wells being brought to sales.
In contrast, the Delaware Basin is anticipated to see a decline in production despite 20 wells being brought online in the second quarter compared to only four in the previous quarter. The expected decrease is attributed to a larger proportion of activity in areas where Marathon Oil has a lower working interest and some production benefits in the first quarter that were carried over from late 2023 completions.
The firm forecasts Marathon Oil's second-quarter cash from operations (CFO) to be around $1,057 million. The total cash return is estimated at $138 million, representing approximately 13% of the CFO, split between base dividends of $63 million and $75 million in buybacks.
In other recent news, Marathon Oil has been the subject of several significant developments. The Federal Trade Commission is scrutinizing the company's impending acquisition by ConocoPhillips (NYSE:COP), potentially delaying the merger's projected completion by the end of this year. Despite this, both companies remain committed to their initial timeline. Scotiabank (TSX:BNS) has downgraded Marathon Oil stock from Sector Outperform to Sector Perform, adjusting the price target to $29.00 due to anticipated risk-arbitrage pressures linked to the acquisition.
Simultaneously, Marathon Oil has agreed to settle alleged Clean Air Act violations with the Environmental Protection Agency and the Department of Justice, agreeing to pay $64.5 million and implement specific injunctive relief measures. This is part of a larger $241 million agreement over allegations of air pollution violations, with the company planning to invest approximately $177 million to bring its facilities up to compliance standards.
In the wake of these developments, RBC (TSX:RY) Capital has increased its price target on Marathon Oil shares to $36, citing a strong production outlook, while Mizuho Securities has also increased its price target for Marathon Oil shares to $34, maintaining a neutral rating. These are recent developments that investors should take into account when evaluating their positions in the stock.
InvestingPro Insights
As Marathon Oil Corporation (NYSE:MRO) navigates the market with its recent rating adjustment by JPMorgan, a glimpse into the company's financial health and strategic moves can be provided by recent InvestingPro metrics and tips. With a market capitalization of $16.21 billion and a trailing twelve-month P/E ratio of 11.37, Marathon Oil presents itself as a company with a solid financial footing. Notably, the company's aggressive share buyback strategy, as highlighted by one of the InvestingPro Tips, underscores management's confidence in the company's value proposition.
InvestingPro Data also shows that Marathon Oil maintains a robust gross profit margin of 75.91% for the last twelve months as of Q1 2024, indicating efficient operations and strong pricing power. Furthermore, the company's dividend yield stands at 1.52%, with a notable 10.0% dividend growth in the same period, reflecting a commitment to shareholder returns. This is in line with another InvestingPro Tip that points out the company's track record of raising its dividend for three consecutive years.
For readers looking to delve deeper into Marathon Oil's performance and strategic direction, additional InvestingPro Tips are available, including analysis on stock price volatility, liquidity, and profitability predictions for the year. To access these valuable insights, consider subscribing to InvestingPro using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. With 11 additional tips listed on InvestingPro, investors can gain a more comprehensive understanding of Marathon Oil's investment potential.
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