Argus Rates Marathon Oil A Buy, Sees 177% Upside

Argus’ Bill Selesky noted that ever since it became an independent E&P company in 2011, Marathon Oil Corporation MRO has successfully divested its high cost, lower production non-core assets “in favor of higher-margin, higher-producing North American unconventional oil, gas and liquids assets.”

Selesky upgraded the rating on the company from Hold to Buy, with a price target of $52.

Favorable Strategy

Viewing the company’s strategy as favorable, the analyst believes Marathon Oil “offers an exceptional opportunity of a diverse, high-return inventory within its three primary resource plays.”

Selesky expects the company to surprise on the up side, stating that it has continued to achieve sustainable cost savings via efficiency gains and technology.

Sustainable Cost Savings

The company has been able to reduce its total E&P expense by 40 percent since Q1:2015, while also lowering its North America E&P expenses by 30 percent and International E&P unit production costs by 40 percent, while continuing to deliver “high operational availability.”

The analyst expects Marathon Oil to be able to achieve profit growth at a CAGR of 10-15 percent over the next few years.

Following the beat EPS reported by the company for Q3:16, the EPS loss estimate for 2016 has been narrowed from $(0.96) to $(0.90).

At last check, shares of Marathon were down 1.36 percent at $18.55.