On Dec 24, Zacks Investment Research downgraded the upstream energy firm Marathon Oil Corporation (MRO) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Marathon Oil had reported weak third-quarter 2014 results owing to lower realized crude oil price and high exploration expenses. The company reported earnings of 57 cents, which not only missed the Zacks Consensus Estimate by a penny but also fell almost 10% from 63 cents in third-quarter 2013.
With the consistent low crude price, expected to continue amid Organization of the Petroleum Exporting Countries’ (OPEC) decision against a production cut and lower 2015 demand projection, Marathon oil’s earnings are expected to be hampered further.
Moreover, strong production, which had somewhat offset the negatives during the third-quarter results, may be missing in the full year results. Marathon had projected 2014 North America and International E&P output in the 350,000–360,000 BOE/d band, which is significantly lower than the 2013 level. Oil Sands Mining output is also likely to see a yearly decline.
Marathon Oil recently announced that it expects 2015 capital spending to be between $4.3 and $4.5 billion, about 20% less than the current year. However, the company added that it has not finalized its 2015 capital budget as crude price and its effect on oil services expenses are highly volatile now. This uncertainty raises questions about Marathon’s strategy.
Also, a majority of the brokerage firms have lowered the current quarter and current year earnings estimates for Marathon Oil, further confirming the bearish outlook.
Other Stock Picks
Better-ranked stocks sporting a Zacks Rank #1 (Strong Buy) include Spectra Energy Partners, LP (SEP), Seadrill Partners LLC (SDLP) and SandRidge Mississippian Trust I (SDT).
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