Marathon Oil Stock Still Deserves Your Attention Despite Analyst Concerns

A couple of high-profile financial firms are firmly bearish, but there are two sides to the story for MRO stock

Along with April’s oil-price crash came some anomalies and, in hindsight, some opportunities. WTI crude oil recovered from -$37 to $30+ per barrel while Marathon Oil (NYSE:MRO) floated from the low $4’s up to around the $6 level. But does that mean MRO stock deserves your attention now?

That’s a substantial recovery, but long-term owners of MRO stock are still struggling. It’s hard to imagine now that this was a $20 stock in 2018 and a $40 stock in 2014. But then, the bulls might argue that the shares have touched those levels before and might, therefore, reach them again.

Sometimes investors can look to big-bank analysts for guidance and reassurance in troubling times like this. In the case of Marathon Oil’s stock, though, it might be tough to find an expert with a sunny outlook.

Amid a couple of downgrades from high-profile analysts, investors might wonder whether the stock is worth their investment capital. That’s a legitimate concern, so it’s worth looking into the downgrades and their apparent justifications.

Moody’s Gets Moody

It’s a professional financial expert’s job to assess the relative value of various assets. That being the case, we can’t expect them to always have a positive outlook on the companies they’re reviewing.

Yet it’s not every day that we see big-bank analysts taking a very harsh position on a well-known company with a long history. Marathon has been around since 1887 and has a market capitalization of $4.65 billion. It’s a giant in the petroleum space even though the share price is depressed.

In spite of all that, analytics firm Moody’s went ahead and gave MRO stock a major smackdown not long ago. Specifically, Moody’s downgraded its rating on the company from “stable” to “negative.”

Adding insult to injury, Moody’s gave Marathon’s senior unsecured notes (i.e., corporate bonds) a rating of “Baa3.” That’s essentially a fancy way of saying that Marathon’s debt notes are the equivalent of junk.

The investing community takes Moody’s ratings very seriously, so this alone could deter some cautious market participants from taking a position in Marathon Oil.

Moody’s Vice President Amol Joshi issued a scathing review, saying, “Marathon Oil’s credit metrics will weaken considerably due to low oil prices in 2020.”

The company added that “the negative rating outlook reflects the company’s limited resilience to a prolonged industry downturn due to an anticipated decline in production and lack of meaningful hedges in 2021.”

Another Bear Attack

In other words, Moody’s believes that Marathon can’t handle the oil-price decline and the limited energy demand. And of course, the outbreak of the novel coronavirus and widespread shelter-in-place mandates are contributing factors here.

Is there merit to Moody’s dour outlook? Probably, but much of the oil market’s damage has likely already been priced into Marathon Oil shares.

Hence, if the spot-oil price continues its recovery, the stock could make a powerful move to the upside. The company’s Baa3-rated notes could do well, too.

Not that everyone sees it that way. As if the company didn’t have enough problems already, analysts at Morgan Stanley, led by Devin McDermott, downgraded MRO stock a day after Moody’s did.

The grading language is different, but the pain remains the same. In Morgan Stanley’s case, the firm changed its rating from “neutral” to “underweight.”

At the same time, Morgan Stanley reiterated its price objective of $5 for MRO shares. The justification again used different language from the explanation provided by Moody’s, but the gist of it was similar.

Is it a coincidence that Morgan Stanley issued its downgrade a day after Moody’s did? Or is this a case of one analytic firm aping the other? We may never know the answer, but it wouldn’t be too surprising if these analysts quickly revise their positions if the per-barrel oil price regains $50 or more.

The Takeaway on MRO Stock

When fancy-pants analysts wake up on the wrong side of the bed, price targets tumble and investors run for the hills. That’s unfortunate because a sustained oil-price recovery could precipitate a turnaround in MRO stock. Only then, too late to be useful, will the analysts change their minds.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.