Marathon Oil Corporation (MRO) explores, produces, and markets crude oil and condensate, natural gas liquids, and natural gas, as well as produces and markets natural gas-derived products such as liquefied natural gas and methanol.

Along with 32 central gathering and treating facilities, it also owns and manages the 42-mile Sugarloaf gathering system, a natural gas pipeline that runs through the counties of Karnes and Atascosa.

The company’s shares have gained 124.4% over the past year and 56.9% year-to-date to close the last trading session at $25.76. In addition, the stock is currently trading above its 50-day and 200-day moving averages of $24.10 and $23.20, respectively, indicating an uptrend.

Moreover, OPEC maintained its forecasts for strong growth in global oil demand in 2022 and 2023, citing that major economies are performing better than anticipated despite challenges like rising inflation.

OPEC stated in a monthly report that oil demand will rise by 3.1 million barrels per day (BPD) in 2022 and by 2.7 million BPD in 2023. Therefore, MRO should benefit.

Here's what could shape MRO's performance in the near term:

Robust Financials

During the second quarter ended June 30, 2022, MRO's total revenue and other income increased 101.4% year-over-year to $2.30 billion. Its income from operations grew 1132.3% from the year-ago value to $1.29 billion.

The company’s adjusted net income surged 439.9% from the year-ago value to $934 million, while its adjusted EPS increased 500% from the prior-year quarter to $1.32.

Strong Profitability

MRO's trailing-12-months net income margin of 43.6% is 330.8% higher than the industry average of 10.1%. Also, its ROC, EBITDA margin, and ROA are 67.8%, 158.3%, and 189.5% higher than the respective industry averages. Furthermore, its levered FCF margin of 33.1% is 442.4% higher than the industry average of 6.1%.

Impressive Growth Prospects

Street expects MRO's revenues and EPS to rise 47.9% and 214% year-over-year to $8.09 billion and $4.93, respectively, in fiscal 2022. In addition, MRO's EPS is expected to rise at a 17.6% CAGR over the next five years.

Furthermore, the company has an impressive earnings surprise history, as it topped Street EPS estimates in all of the trailing four quarters.

Discounted Valuation

In terms of forward non-GAAP P/E, the stock is currently trading at 5.29x, 27.1% lower than the industry average of 7.25x. Also, its forward Price/Cash Flow of 3.11x is 21.8% lower than the industry average of 3.98x. Moreover, MRO's forward Price/Book of 1.49x is 14.4% lower than the industry average of 1.74x.

Consensus Rating and Price Target Indicate Potential Upside

Of the 12 Wall Street analysts that rated MRO, eight rated it Buy, and two rated it Hold. The 12-month median price target of $32.17 indicates a 24.9% potential upside. The price targets range from a low of $24.00 to a high of $43.00.

POWR Ratings Reflect Solid Prospects

MRO has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. MRO has an A grade for Quality and a B for Growth. The company's higher-than-industry profit margins are in sync with the Quality grade. In addition, analysts’ solid earnings and revenue growth estimates are consistent with the Growth grade.

Moreover, the stock’s consistent gains over the past month, past three months, and year-to-date justify its A grade for momentum.

Of the 95 stocks in the B-rated Energy – Oil & Gas industry, MRO is ranked #35.

Beyond what I stated above, we have graded MRO for Value, Stability, and Quality. Get all MRO ratings here.

Bottom Line

MRO's impressive bottom-line growth and higher-than-industry profit margins reflect its strong positioning. Furthermore, favorable analyst ratings and the consensus price target indicate a significant upside potential. So, the stock could be a great investment to capitalize on its momentum.

How Does Marathon Oil Corporation (MRO) Stack Up Against its Peers?

MRO has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the same industry with A (Strong Buy) ratings: Valero Energy Corp. (VLO), Whitecap Resources Inc. (SPGYF), and Marathon Petroleum Corp. (MPC).

MRO shares were trading at $25.44 per share on Wednesday afternoon, down $0.32 (-1.24%). Year-to-date, MRO has gained 56.43%, versus a -18.82% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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