In separate reports published Sunday, Oppenheimer analyst Fadel Gheit downgraded shares of EOG Resources Inc EOG to Perform from Outperform while removing his previous $105 price target. The analyst also downgraded shares of Marathon Oil Corporation MRO to Perform from Outperform while removing his previous $32 price target.
EOG Resources: Expected Losses & Cash Flow Troubles
According to Gheit, EOG Resources is expected to see a cash flow deficit of $1.3 billion in 2015, only to recover slihgtly to a $0.8 billion deficit next year.
As of the end of the second quarter, the company's net debt increased $260 million sequentially to $5.0 billion for a net debt ratio of 22.4 percent.
Gheit noted that EOG Resources' management stated that its key US onshore oil plays can still generate a 30 percent after-tax return at $50 oil and it will not grow production until oil prices recover. However, the analyst noted that the company held a similar view of the US gas market, but its recovery "never materialized."
Gheit concluded that shares of EOG Resources historically traded at a premium given its strong oil production growth rate. Absent a strong growth rate, the analyst suggested that the premium valuation in the stock is "unjustified."
Marathon Oil: Budget Deficit In Focus
According to Gheit, Marathon Oil is expected to report a cash flow deficit of $2.2 billion this year and $1.3 billion next year should oil prices remain below $75 a barrel. The expected deficit also puts into question the company's dividend payouts.
As of the end of the second quarter, operating cash flow of $590 million partially funded $868 billion of capital expenditure and a dividend payout of $143 million. The company's total debt stood at $8.4 billion with cash on hand of $1.6 billion.
Looking forward, Gheit estimated the company will lose $1.38 per share in 2015 (unchanged from a prior estimate) and a loss of $1.24 per share in 2016 (previously estimated at $1.36).
Based on the analyst's 2016 estimates, shares are trading at a 5.0x P/CF multiple and 8.0x EV/EBITDA – bot of which are above the company's 10 year average of 4.8x P/CF and 4.0x EV/EBITDA.
Market News and Data brought to you by Benzinga APIs© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Loading...
date | ticker | name | Price Target | Upside/Downside | Recommendation | Firm |
---|
Benzinga simplifies the market for smarter investing
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
Join Now: Free!
Already a member?Sign in