We are downgrading Marathon Oil Corp. (MRO) shares to Underperform from Neutral following the company's second quarter miss and its clouded post-split outlook. Near-term upstream production profile remains muted without any meaningful large volume additions for the next few years.
The weaker-than-expected performance at the Droshky development in deepwater Gulf of Mexico and the suspension of the low cost Libyan operations are also causes for concern. Additionally, the transfer of the refining/sales operations has left Marathon with a less diversified business, thereby heightening its risk profile.
Our $25 price objective reflects a 2011 P/E multiple of 6.0x, which is within Marathon's historical trading range. The stock also carries a Zacks #5 Rank (Strong Sell) at this time.
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