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.
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