Marathon Oil Gets Upgrade Due To Higher Oil Prices, More Cash Return To Shareholders

Marathon Oil Gets Upgrade Due To Higher Oil Prices, More Cash Return To Shareholders

With an oil price forecast of $51 per barrel for 2021 and of $56 per barrel for 2022, Marathon Oil Corporation MRO is likely to generate around $2.1 billion over the next couple of years, which is enough to take its leverage to less than 1.0x by yearend 2022, according to Mizuho Securities.

The Marathon Oil Analyst: Vincent Lovaglio upgraded Marathon Oil from Neutral to Buy, while raising the price target from $6 to $11.

The Marathon Oil Thesis: The company has announced plans to reinvest 70% or less of its cash flows at oil prices of $45 per barrel, with more than 30% of operating cash flows to be returned to shareholders at oil prices higher than that, Lovaglio said.

“Our $2.0Bn OCF forecast next year implies capacity for $600Mn+ of cash return compared to a current base dividend of ~$100Mn,” he wrote in the note.

The bullish forecast for oil is driven by “a return to 2019 demand levels” and “ongoing U.S. E&P capital discipline,” the analyst wrote.

“In this scenario, where oil prices rally on constrained U.S. unconventional oil growth, we think MRO is positioned to outperform,” he added.

MRO Price Action: Shares of Marathon Oil had risen by 9% to $8.34 at the time of publication Tuesday.

Posted In: Mizuho SecuritiesVincent LovaglioAnalyst ColorUpgradesPrice TargetCommoditiesMarketsAnalyst Ratings