MRO Fundamental Research Investment Analysis, Marathon Oil Corp.

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Marathon Oil Corporation (MRO)

The Razor's Edge

2-Year Price History

Recent Price
(1/7/2009)
$28.71
52-Week Price
$19.34 - $55.75
Market Capitalization
$20.3 Billion
Dividend Yield
3.30%
Most Recent Dividend
$0.92

About Marathon Oil Corp.

Marathon Oil Corporation is considered to operate in the Basic Materials sector. They specifically operate in the Oil & Gas Refining/Marketing business segment contained within the Energy industry.

The Company is engaged in exploration, production & marketing of liquid hydrocarbons & natural gas; oil sands mining & bitumen upgrading; domestic refining, marketing of crude oil; & transportation of products manufactured from natural gas and methanol.

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

MRO Revenue

As a value investing shop, we are interested in seeing how MRO's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 0.53x and the low end of the range at 0.32x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for MRO of 0.26x is well below its normal historic Price to Sales levels. At a price of $28.98, MRO is 39% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

MRO Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of MRO, Ockham views their current Cash Earnings as significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from MRO. For example, MRO's Cash Earnings ratio per share has fluctuated between 3.93 and 6.34 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where MRO is with respect to prior business periods.

So with MRO's current price (latest close of $28.98) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, MRO is 49% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with MRO.

MRO Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for MRO to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for MRO is $0.96 producing a current dividend yield of 3.31%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from MRO against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from MRO over previous years was 4.96% while the lowest dividend yield was 1.37%. Management at MRO has encouraged us with a current dividend yield of 4.58% above the historical median.

Peer Comparison

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Marathon Oil Corp. Industry Grouping

(1/7/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding MRO) 4.98 3.25 » 17.13 1.19 1.10 » 13.46 27.43% 23.90%
*10 year range does not include current year values
XTO Energy, Inc. XTO $22.0 Billion $38.11 4.82 1.51 » 11.37 1.89 0.62 » 21.32 46.82% 23.88%
Suncor Energy Inc. SU $21.2 Billion $22.71 3.95 5.35 » 17.84 0.88 1.82 » 14.30 42.07% 25.58%
Marathon Oil Corp. MRO $20.3 Billion $28.71 2.65 2.50 » 8.56 0.26 0.21 » 2.63 16.89% 23.94%
Sasol LTD ADR SSL $19.1 Billion $32.09 6.88 3.13 » 15.05 0.98 0.87 » 9.93 11.49% 24.10%
Halliburton Company HAL $18.5 Billion $20.69 4.44 3.54 » 23.38 0.85 0.95 » 8.61 4.08% 23.85%
Anadarko Petroleum Corp. APC $18.4 Billion $40.14 4.80 2.69 » 18.00 1.32 1.23 » 13.16 32.71% 22.08%
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Key Fundamentals

MRO - Marathon Oil Corporation Fundamentals
Price (1/7/2009) $28.71
Volume (1/7/2009) 7.4 Million
10 Day Average Volume 5.7 Million
13 Week Price Range $19.34 - $34.75
52 Week Price Range $19.34 - $55.75
LTM Revenue $79.7 Billion
 
Shares Outstanding (12/2007) 705.6 Million
Market Capitalization $20.3 Billion
Shares Held By Institutions 580.6 Million
Insitutional Holders 970
% Shares Held By Institutions 82.30%
Earnings Per Share (EPS) $5.69
P/E Ratio 4.80
Book Value Per Share $31.08
 
Gross Margin 16.40%
Quarterly Dividend 0.96
Dividend Yield 3.30%
Beta 1.45
Fiscal Year Ends December