UBS Upgrades Murphy Oil, No Longer Selling Stock After Earnings: What It Means

In a report published Thursday, UBS analyst William A. Featherston upgraded the rating on

from Sell to Neutral, while reducing the price target from $41 to $36. The recent sell-off in Murphy Oil's shares has brought the stock's valuation in-line with the company's peers, analyst William Featherston said. "Despite its strong balance sheet, we don't believe MUR warrants a premium valuation to peers given its large FCF deficit, lack of long-term growth visibility, & below average debt-adjusted growth outlook," Featherston added. Murphy Oil reported 2Q15 clean EPS of ($0.48), better than the UBS estimate of ($0.58), due to higher-than-expected production levels and liquids realizations. The company's CFPS declined 51 percent y/y to $2.13, although it was 14 percent higher than the UBS estimate of $1.87. The company's production for the quarter declined 4 percent y/y to ~202 MBoed, but was better than the UBS estimate of ~198 MBoed as well as its own guidance of 197 MBoed. Murphy Oil raised its full-year volume guidance by ~3 MBoed to 200-208 MBoed. In the report UBS noted, "The company's 2015 capex budget of $2.3 bn is expected to cause a FCF deficit of over $1 billion at current strip prices." Murphy Oil intends to shift its exploration strategy to a more focused, lower risk program due to the lack of success over the last several years.