When Marathon Oil Corp. (NYSE: MRO) reported fourth-quarter earnings after markets closed last Wednesday, investors couldn’t wait to jump ship. The stock closed at $7.41 on Wednesday, $6.93 on Thursday and $6.73 on Friday, down more than 9% even though the company beat revenue estimates and met earnings per share estimates.
The stock regained nearly half that loss in the first half-hour of trading on Monday. What probably cost Marathon shareholders last week was the company’s forecast for 2016 capital spending to $1.4 billion, a drop of 50% from 2015 capex. Investors were no doubt wondering if the 50% cut was enough.
Also Monday morning, analyst Lloyd Byrne at Nomura reiterated his Buy rating on the stock and his price target of $13 a share. He notes that the debate among Marathon shareholders mostly has to do with cash flow and how a company will use cash: to continue funding capex at current futures prices by maintaining core assets, including key staff, and how will that affect existing shareholders?
Byrne expects cash flow from operations of about $630 million in 2016. Figuring in the capex forecast and about $136 million in dividend payments, the analysts see full-year deficit of $900 million. How Marathon manages that shortfall means a great deal to existing stockholders.
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