Marathon Oil Gets Upgrade On Disciplined Spending Approach

In a report published Friday, Wells Fargo analysts upgraded the rating on

from Market Perform to Outperform, while raising the valuation range from $30-$32 to $34-$36. In the report Wells Fargo noted, "We believe MRO's attractive shale acreage and drilling program should deliver from a growth/cash flow/returns standpoint. In our opinion, MRO has displayed a disciplined spending approach, successful cost-control and cost containment, greater access to capital markets and a willingness to pare non-core assets for cash." The analysts believe that Marathon Oil is poised to grow production in 2015 and "be no worse than stable" next year. The EPS estimates for 2015 and 2016 have been raised from -$1.27 to -$1.04 and from $0.06 to $0.28, respectively. "Higher estimates reflect lower opex for both E&P and oil sands mining (OSM) and the Q1 beat/flow through. Our production forecast for 2015 remains within the reiterated guidance range of 370-390 thousand barrels of oil equivalent per day (Mboed)," the analyst explained. Marathon Oil could return to a cash flow positive level in the latter half of this year, assuming that the company does not repurchase shares, has planned non-core asset sales of an estimated $500 million and achieves a decline in capex for the rest of 2015. "For 2016, assuming minimal asset sales and modest capex increases, we expect MRO will be cash flow neutral after dividends. Management has indicated that they would be willing to employ the balance sheet to make up for cash flow/spending discrepancies, which was demonstrated by the recent amendment to the revolver," the analysts added.