Monday, Credit Suisse downgraded Marathon Oil Corp. (MRO) shares to Neutral from Outperform, while increasing its price target to $30 from $28.
Analyst Flannery attributed the downgrade based on the back of fair valuation and lack of catalysts. MRO is no longer an obvious value play, and the story lacks significant near-term catalysts, barring a reactivation of the break-up story. The analyst increased price target to account for recent new information.
The analyst said that a fairly obvious "value play" some months ago, MRO has been the best performing Big Oil of the last 1, 3 and 6 months. The strong performance has narrowed the stock's discount to Net Asset Value, and it now trades roughly in line with other Big Oils on earnings and cash flow multiples.
The analyst noted that MRO grew production faster than any Big Oil from 2005-2007. Though it points to 4% annual growth from 2008-2011, most of this growth is concentrated in 2009 and comes from the first full year of production from Alvheim and Neptune.
The analyst said that no new start-ups are expected until Volund in fourth quarter of 2009, and MRO have no meaningful exploration activity through the remainder of the year to create upstream newsflow. MRO is one of the best downstream operators in the world and is well positioned for a prolonged downturn in refining.
Still, nearly 20% of its post-Garyville Major Expansion, or GME, refining capacity is in smaller plants that may be vulnerable to closure in a long period of low margins. The GME should be materially profitable, but the analyst is less enthused by the Detroit Heavy Oil Upgrade Project at this point in the cycle.
Currently, MRO is up $0.39 or 1.26% and trading at $31.23.
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