No one is surprised that Marathon Oil (NYSE:MRO) has been hammered. Not only have the equity markets been slammed, but so too have oil prices and the energy sector. Despite an 90% bounce from the lows, MRO stock remains 60% off its 2020 high and 70% off the 2019 high.
One could argue that MRO stock was never really the cream of the crop, but its fall from the top has been stunning. Less than two years ago, shares were holding $20 as support. In 2016, shares were making a run at $40.
At its recent low, shares finally bottomed at $3.02. Is it time to bottom-fish with MRO stock?
Breaking Down Marathon Oil
On May 6, Marathon reported earnings. The company lost 16 cents per share, missing estimates by a penny. Revenue of $1.02 billion slipped 15% year-over-year and missed expectations by $20 million.
The company cut down its workforce and withdrew its full-year guidance. It also cut its capex budget, now planning on spending $1.3 billion or less for the year. That’s more than $1 billion below its prior outlook and a 50% reduction from 2019’s capex figure.
Unfortunately, management also decided to halt its dividend payments and share buybacks. After such a precipitous decline in the stock price though, I don’t think many are surprised by the decision. If anything, allowing the company time to shore up its financials and ease its cash burn is good news.
There is some good news, though.
First, the halt in capital return is said to be temporary, at least for now. Second, after recent reviews from Fitch and S&P, MRO stock maintains an investment grade credit rating. Finally, Q2 cash flow is “protected,” as the company has a “weighted average floor price” of $30.33 per barrel.
Moving Forward With MRO Stock
Analysts expect a loss of $1.41 per share in 2020, down from a profit of 75 cents per share in 2019. That’s on expected 2020 revenue of $3.39 billion, down about 35% from 2019. I can live with a big decline in growth, but 2021 is the concern.
Despite a massive decline in 2020, analysts expect revenue to rebound just 1.3% to $3.43 billion in 2021. While they expect 34% earnings growth next year, they’re still forecasting a loss of 93 cents per share.
At the very least, investors will eventually need a dividend if they’re going to wait around. On the plus side, the balance sheet seems OK. Current assets of $2.14 billion outweigh current liabilities of $1.74 billion. Total assets of $20.24 billion easily outweigh total liabilities of $8.1 billion.
This is a lot of information to digest. The good news is that MRO stock looks like it was priced to go out of business, while its financials don’t appear that way. With a strong rebound in crude prices underway, MRO should be able to lock in pricing (and thus cash flow) as we move along. The concern is the longer-term outlook in crude, much of which is unknown due to the novel coronavirus.
The downside to Marathon Oil at this point is simply the waiting. A hammering in revenue and earnings this year with expectations for a sluggish rebound in 2021 does little to get investors excited.
For some investors, waiting is too hard. If they want energy exposure, they may prefer majors like Exxon Mobil (NYSE:XOM) or Chevron (NYSE:CVX). They may also prefer an ETF like the Energy Select SPDR ETF (NYSEARCA:XLE).
Trading MRO Stock
On the chart, the best opportunity came in April at sub-$4 levels. Shares broke out of that depressing falling wedge, doing so in a really clear manner. I only wish MRO stock was on my radar at the time.
That breakout led to another flag later in the month, which led to another consolidation in May. Trading sideways now, I’d love to buy MRO stock closer to the 20-day moving average or current support closer to $5.
A break over $6.30 resistance could put a gap fill up toward $7 in play. It could also put the 38.2% retracement in play at $7.22. Below $5 and the setup breaks down, putting the 50-day moving average in play.