Marathon Oil Corporation (MRO) Stock Seems Well Poised For A Rally

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The fiscal cliff has been avoided (if not permanently), and oil is again above the $110 mark. Moreover, according to recent economic data, China’s crude imports have risen by 6.8% in 2012, and in November 2012 Indian Crude imports surged by 13%. The trend is expected to continue, and the rising crude prices present a bullish picture for oil companies.

Marathon Oil Corporation (NYSE:MRO)Bullish Prospects of Marathon Oil Corporation (NYSE:MRO)

The management of Marathon Oil Corporation expects its Q4 oil production to be around 415,000 barrels per day, which would be 4.5% higher on a sequential basis. The management also announced that it would be ramping up its oil production from the Bakken region and Eagle Ford by 10% and 20%, respectively. Moreover, the recoverable resources from its Bakken assets are nearly double what was earlier estimated.

Since the Bakken and Eagle Ford regions consist of hydrocarbon rich resources, oil produced from the region generally carries higher margins. This move highlights management’s focus of high margin oil production, while it would be slowing down its production of lower margin oil. Earlier this year Marathon Oil entered a $750 million deal to acquire more acreage in the Eagle Ford region. This would further boost the company’s hydrocarbon reserves, and it can ramp up its production without straining its other hydrocarbon assets.

In the recent quarter, the company reported revenues of $4.16 billion, beating the Street’s estimated $3.5 billion. Additionally, its net income stood at $450 million, which was up by 9% on a sequential basis. But that’s not all–its debt/equity stands at a modest 36%, with a net debt of $1.7 billion. The company ended the quarter with $671 million in cash, and its debt seems modest since its FY11 debt/capital ratio equates to 22%. Also, the company enjoys a net profit margin of 11.45%, which is higher than most of its peers, and altogether its balance sheet looks solid.

Avoid Anadarko Petroleum Corporation (NYSE:APC) and Apache Corporation (NYSE:APA)

Although shares of Apache Corporation trade at reasonable earnings multiples, its PEG ratio of 2x suggests that the company is overvalued with respect to its growth prospects. Moreover, its P/C and P/FCF equate to ridiculously high multiples of 103x and 539x, respectively. Had there been some positive news for the company these metrics could have been ignored, but as of now there is absolutely no catalyst that justifies initiating long positions in Apache at such high valuations.

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