Marathon Oil Corporation (MRO) is a Houston, Tex.-based independent exploration and production company that is engaged primarily in exploring, producing, and marketing crude oil and condensate, natural gas liquids, and natural gas and natural gas products. It also owns and operates gathering and treating facilities. The stock has gained 297.9% in price over the past year and 155.9% year-to-date to close its last trading session at $17.07. In addition, shares of MRO are trading well above their 50-day and 200-day moving averages, indicating an uptrend. However, it has a 3.08 beta, which indicates that the stock is more volatile than the broader market.

MRO delivered a robust third-quarter earnings report, outpacing the consensus earnings estimate. Its total revenues and other income increased 92.7% year-over-year to $1.45 billion in its fiscal third quarter, ended September 30. Its adjusted net income was  $310 million compared to a year-ago loss. The company’s adjusted EPS increased 239.3% year-over-year to $0.39, beating the $0.31 consensus EPS estimate by 25.8%.

Favorable industry trends, with rallying oil and natural gas prices and a sharp rise in demand, have helped the company register significant gains and recover from last year’s losses. Gas prices have surged to a seven-year high of $3.40 per gallon nationally, while Bank of America expects Brent crude oil to hit $120 per barrel by June 2022, marking a 45% increase over current levels. The rising prices should bode well for oil-producing companies.

Here is what could shape MRO’s performance in the near term:

Mixed Valuations

In terms of forward EV/EBITDA, MRO is currently trading at 5.15x, which is 36.5% lower than the 8.11x industry average. Also, its 1.26 forward Price/Book ratio is 26.3% lower than the 1.71 industry average.

However, MRO’s forward P/E is 35.9% higher than the 13.58x industry average, and its trailing-12-months EV/EBIT is 366.7% higher than the 18.95x industry average.

Mixed Profitability

MRO’s  74.16% gross profit margin s 81.5% higher than the 40.86% industry average. Also, its levered FCF  and EBITDA margins of 35.46% and 55.40%, respectively, is 262% and 155.8% higher than the 9.80% and 21.66% industry averages.

However, MRO’s ROE and ROA of negative 0.38% and 0.23%, respectively, compare with the 2.81% and 1.07% industry averages. Also, its ROTC is 76.6% lower than the industry average.

POWR Ratings Reflect Uncertain Prospects

MRO has an overall C rating, translating to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Value, consistent with its mixed valuation. In addition, MRO has a D grade for Stability. Its greater than one beta justifies this grade.

Of the 84 stocks in the Energy - Oil & Gas industry, MRO is ranked #27.

Beyond what I have stated above, one u can also view MRO’s grades for Quality, Growth, Momentum, and Sentiment here.

View the top-rated stocks in the Energy - Oil & Gas industry here.

Bottom Line

The favorable industry trends have enabled the company to deliver solid third-quarter results. And because oil and gas prices are expected to continue  rising, the company should benefit. However, investors' bullish sentiment surrounding the sector has made MRO look slightly expensive based on some parameters. Also, the stock seems to be highly volatile. So, we think it could be wise to wait for a better entry point in the stock.

How Does Marathon Oil Corporation (MRO) Stack Up Against its Peers?

While MRO has an overall POWR Rating of C, one  might want to consider looking at its industry peer, SilverBow Resources, Inc. (SBOW), which has an A (Strong Buy) rating.

Note that SBOW is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.

MRO shares were trading at $17.39 per share on Monday afternoon, up $0.32 (+1.87%). Year-to-date, MRO has gained 163.58%, versus a 26.58% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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