Valuation Scorecard: Stock Rating C-High Neutral (2/27/24)-Marathon Oil Corp (MRO).

Over the next 6 years, Marathon Oil shares will need to reach $41 to achieve average annual stock market performance of 9.0%. Marathon Oil’s stock price will need to reach $48 by 2028 to achieve upper quartile performance. As reflected at the current price of $24, what future Marathon Oil operating performance is the market anticipating?

Executive Summary

• Key Marathon Oil characteristics: high expected growth, very high profitability, instability, and below average financial strength. Profitability is a big positive influence on Marathon Oil’s valuation while Risk Profile is a big negative influence.
• High valuation, below market shareholder returns. Current valuation levels are high relative to the Marathon Oil Peer Group. Recent market returns have underperformed the Marathon Oil Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Marathon Oil shares should reach a level of $185 by 2028 — an 41.4% per year total shareholder return. A 2028 stock price of $41 would reflect median performance and a price of $48 would be required to reach upper quartile performance.
• Marathon Oil’s achieved growth is modestly above average. Historical growth has been high relative to the Marathon Oil Peer Group and forecasted growth is relatively very high. Revenue Growth, and EPS Growth have been superior. These factors have buoyed market perceptions of Marathon Oil. Marathon Oil’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. Marathon Oil’s consensus growth expectations are in line with past growth.
• Profitability has been Marathon Oil’s biggest valuation strength. Pretax Margin, Return on Equity, and Pretax ROA are group leading. These factors have strengthened market perceptions of Marathon Oil. The company has normal cash needs.
• Marathon Oil’s risk profile is very unfavorable. Overall variability has been very high with very high revenue variability, only average E.P.S. variability, and above average stock price volatility. Financial Strength is below average and earnings’ expectations are very low. The debt/capital ratio has risen very significantly.

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