Marathon Oil Upgraded At MSCO From Equal Weight To Overweight

Marathon Oil Corporation MRO's recent STACK acquisitions add meaningful leverage to the “the fastest improving unconventional plays in the US, allowing for capital efficient growth into the next up-cycle,” according to Morgan Stanley’s Evan Calio.

Calio upgraded the rating on the company from Equal Weight to Overweight, while raising the price target from $18 to $21.

Catalysts

“We expect STACK will also provide material catalysts over the next 3+ quarters as it transitions from a delineation play to a development play,” the analyst mentioned.

Related Link: Marathon Oil Has Significant Upside: Citi Raises Target To $16

Calio believes the recent disruptions in crude supply have accelerated market re-balancing. Although there could be oil price risks in 2H16 due to the return of outage barrels, the analyst expects the “bridge to a materially high crude price on fundamentals” to be shorter now.

In addition, Calio pointed out that meaningful torque to commodity price recovery offers Marathon Oil the highest multiple compression among its Large Cap E&P peers into $80/bl in 2019, despite a production CAGR of 4 percent.