UPDATE: BofA Securities Upgrades Marathon Oil (MRO) to Neutral
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BofA Securities analyst Doug Leggate upgraded Marathon Oil (NYSE: MRO) from Underperform to Neutral, PT $16.00 (from $12.00).
The analyst comments "This upgrade is based on oil leverage. MRO’s production yield is 60% crude oil, with the balance split between gas and liquids, exposing it to the favorable oil set up we see for 2H21 and 2022. We estimate that cash flow increases by $63mn per dollar increase in oil – and based on our forecast changes, this underwrites an increase of $1.6bn in free cash flow from 2H21 to 2023, $1.0bn of which accrues to 2022, which accounts for half of the increase in our Price Objective, which also benefits from the addition of a NGL component to our free cash flow sensitivity. We’d characterize this as a commodity call and a valuation call, and to MRO’s credit it has signaled that oil windfalls will translate into FCF back to investors, allowing for the full pass through on that value. However, oil leverage is essentially a rising tide that will lift all boats, and there are simply more efficient ways to find that leverage in our space."
Shares of Marathon Oil closed at $12.57 yesterday.
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