Marathon Oil Corp (MRO, Financial) experienced a daily gain of 3.09%, marking a 20.73% gain over the last three months. With an Earnings Per Share (EPS) (EPS) of 3.17, the question arises: is the stock fairly valued? This article provides a comprehensive valuation analysis of Marathon Oil, inviting readers to delve into the financial intricacies of the company.
Company Introduction
Marathon Oil Corp 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.
At its current price of $27.17 per share, Marathon Oil has a market cap of $16.50 billion. The stock's fair value, as calculated by the GF Value, stands at $28.23, indicating that Marathon Oil seems to be fairly valued.
Understanding the GF Value
The GF Value is a measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return will likely be higher. Based on this analysis, Marathon Oil appears to be fairly valued, suggesting that the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it is crucial to thoroughly review a company's financial strength before deciding to invest in its stock. A good starting point for understanding a company's financial strength is its cash-to-debt ratio and interest coverage.
Marathon Oil has a cash-to-debt ratio of 0.04, which is worse than 88.06% of 1022 companies in the Oil & Gas industry. GuruFocus ranks the overall financial strength of Marathon Oil at 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Marathon Oil has been profitable 6 times over the past 10 years. Over the past twelve months, the company had a revenue of $6.70 billion and an Earnings Per Share (EPS) of $3.17. Its operating margin is 36.6%, which ranks better than 78.9% of 967 companies in the Oil & Gas industry. Overall, the profitability of Marathon Oil is ranked 6 out of 10, indicating fair profitability.
Growth is one of the most critical factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. Marathon Oil's 3-year average revenue growth rate is better than 72.18% of 852 companies in the Oil & Gas industry. Marathon Oil's 3-year average EBITDA growth rate is 30.3%, which ranks better than 67.76% of 825 companies in the Oil & Gas industry.
ROIC vs WACC
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. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Marathon Oil's ROIC was 10.67 while its WACC came in at 11.03.
Conclusion
In summary, the stock of Marathon Oil appears to be fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 67.76% of 825 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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