Market Overview

Morgan Stanley Downgrades Murphy Oil, Predicts Stock Will Keep Lagging Competitors


In a report published Monday, Morgan Stanley analyst Evan Calio downgraded the rating on Murphy Oil Corporation (NYSE: MUR) from Equal-Weight to Underweight, while reducing the price target from $50 to $48.

Murphy Oil's share price has declined 19.3 percent this year, as compared to a 10.7 percent decline for the group. "We believe MUR will lag the large cap E&P group whether the oil price recovery follows a V- or a U-shaped trajectory and expect its valuation discount to widen during initial stages of a recovery," analyst Evan Calio wrote.

In the report Morgan Stanley noted that in the event of a V-shaped recovery, investors tend to shift focus from a company's near-term cash flow resiliency and balance sheet preservation to resource life and NAV upside.

"MUR should lag as its short inventory life returns to focus. Assuming normalized 2016+ activity level, ~80% of 2014 actual (8 EF rigs vs. 4 deployed currently), MUR would exit 2015 with just 7 years of Eagle Ford drilling locations vs. a 20 year average inventory for our large cap E&P coverage universe," the report added.

In case of a U-shaped recovery, investors exhibit bias towards E&Ps that are able to maintain production while spending within cash flow, preserving their balance sheet strength for a reacceleration into the upcycle or asset acquisitions. "MUR does not fit these criteria, in our view," Calio pointed out.

A shorter drilling inventory life, a challenged offshore strategy and higher cash burn are expected to restrict the company's performance in the future.

Latest Ratings for MUR

Oct 2019MaintainsNeutral
Sep 2019Initiates Coverage OnOutperform
Sep 2019Initiates Coverage OnOverweight

View More Analyst Ratings for MUR
View the Latest Analyst Ratings

Posted-In: Morgan StanleyAnalyst Color Downgrades Price Target Analyst Ratings


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