Marathon Oil Corp (MRO, Financial) experienced a daily loss of -1.46%, a 3-month gain of 9.23%, and an Earnings Per Share (EPS) of 3.17. This prompts an essential question: Is the stock fairly valued? In this article, we explore Marathon Oil's valuation analysis to provide a comprehensive answer.
Introduction to Marathon Oil Corp (MRO, Financial)
Marathon Oil is an independent exploration and production company primarily focusing on unconventional resources in the United States. As of the end of 2022, the company reported net proved reserves of 1.3 billion barrels of oil equivalent. Net production averaged 343 thousand barrels of oil equivalent per day in 2022 at a ratio of 70% oil and NGLs and 30% natural gas.
With a current share price of $25.73 and a market cap of $15.60 billion, the GF Value estimates Marathon Oil to be fairly valued. This valuation is based on a comparison between the stock price and the GF Value, an estimation of fair value. This comparison provides a basis for a deeper exploration of the company's value, integrating financial assessment with essential company details.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock, derived from our exclusive method. The GF Value Line on our summary page provides an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Our analysis indicates that Marathon Oil stock is fairly valued. As such, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength of Marathon Oil
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to review the financial strength of Marathon Oil before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Marathon Oil has a cash-to-debt ratio of 0.04, which is worse than 88.21% of 1018 companies in the Oil & Gas industry. GuruFocus ranks the overall financial strength of Marathon Oil at 6 out of 10, which indicates that the financial strength of Marathon Oil is fair.
Profitability and Growth of Marathon Oil
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Marathon Oil has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $6.70 billion and Earnings Per Share (EPS) of $3.17. Its operating margin is 36.6%, which ranks better than 78.93% of 968 companies in the Oil & Gas industry. Overall, GuruFocus ranks the profitability of Marathon Oil at 6 out of 10, which indicates fair profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Marathon Oil is 20.6%, which ranks better than 72.33% of 853 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 30.3%, which ranks better than 67.92% of 826 companies in the Oil & Gas industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Marathon Oil's return on invested capital is 10.67, and its cost of capital is 11.16.
Conclusion
In short, the stock of Marathon Oil (MRO, Financial) is estimated to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 67.92% of 826 companies in the Oil & Gas industry. To learn more about Marathon Oil stock, you can check out its 30-Year Financials here.
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