Crude-oil prices have come off of the March lows, allowing investors in the exploration-and-production sector to breath for a moment. That might sound like great news, and perhaps it might be. But it could also trap aspiring traders into taking a position in Marathon Oil (NYSE:MRO) stock.
If you were to read the company’s first-quarter conference-call transcript, you might get the impression that Marathon is doing wonderfully well. After all, you couldn’t expect CEO Lee Tillman to spook prospective investors with a wholly negative outlook.
However, it’s your job as an investor to be skeptical and analyze the facts for yourself. Take in the whole picture and look past the spin jobs and the window dressing. Viewed through that lens, you’ll likely find that MRO stock simply doesn’t pass muster.
A Difficult Decision
“Our execution was firing on all cylinders, and we expect this to remain the case,” proclaimed the company’s CEO during Marathon’s most recent conference call. That’s a statement of opinion, so it can neither be proved nor disproved.
Still, numbers can be much more powerful than words in determining whether a company has truly “executed.” One place to start is the MRO stock price. Would shareholders agree that the company’s “firing on all cylinders?”
Not likely. MRO stock flirted with the $14 level in January, only to tumble to $3 and change in March. It recovered some of those losses by early May, but remained at less than half of the stock’s recent peak.
From a technical perspective, then, one would be hard-pressed to claim that all of the cylinders are firing. Next, we can move on to the dividend for MRO stock. Long-term and income-focused investors would certainly be interested in this.
Concerning this, Tillman was evidently happy to boast that Marathon “returned $125 million to… shareholders via … [its] dividend and share repurchase program” during the first quarter. That’s certainly commendable, and Marathon has been a solid dividend payer for years.
But that was then, and this is now. Unfortunately for dividend lovers, Tillman conveyed the upsetting news that Marathon has “made the difficult decision to temporarily suspend both … [its] quarterly dividend and … [its] share repurchase program.”
That was a very difficult decision, no doubt. Perhaps it’s not as difficult, though, as the decision to hold on to MRO stock shares when no dividend payments are coming.
Claimed vs. Actual Value
Marathon’s CEO also claims that the company is “protecting … [its] returns and preserving value through the cycle.” Devoted investors can only hope that Marathon is living up to that promise. But do the numbers suggest value preservation?
Far from it, unfortunately. For the first quarter, the analysts’ consensus estimate predicted an earnings loss of 13 cents per share, adjusted for non-recurring items. That’s already a fairly pessimistic projection.
Sadly, the reality was worse than that as Marathon posted a loss of 16 cents per share. As a point of comparison, the company posted a gain of 31 cents per share in the comparable period of the previous year.
In dollar terms, Marathon’s quarterly adjusted net loss totaled $125 million. The CEO can say that Marathon is “preserving value,” but the investing community won’t likely believe it until they see more encouraging numbers on the books.
And it doesn’t end there. In terms of its international exploration and production segment, Marathon struggled in the first quarter. Specifically, the company posted a $1 million loss in that segment. That same segment showed an earnings gain of $61 million during the comparable quarter of 2019.
The Final Word on MRO Stock
Marathon provides a textbook example of nice-sounding words versus hard facts. The CEO’s words won’t provide much consolation if MRO stock tumbles to new lows. And given the facts we’ve seen, new lows are a distinct possibility.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
