MPC Marathon Petroleum Corp. Common Stock

Energy exploration and production firm Marathon Oil Corp. (MRO) raised its quarterly cash dividend to 19 cents per share (76 cents per share annualized), representing an increase of 12% over the previous payout. The new dividend is payable on Sep 10, to shareholders of record as of Aug 21, 2013.

Marathon Oil, which plans to release its second quarter results on Aug 06, after the close of trading, has bolstered its long-term earnings and cash flow visibility on the back of the company’s high-margin liquids-rich unconventional plays.

We believe that the dividend hike not only highlights Marathon Oil’s commitment to create value for shareholders but also underlines the oil explorer’s healthy financial condition and confidence in its business going forward.

Houston, Texas-based Marathon Oil is a leading energy firm with a large and geographically-diverse reserve base and solid project pipeline.

Marathon Oil’s strong inventory of development projects (in liquid rich resource plays and other focus areas such as Indonesia, the Kurdistan Region of Iraq and Poland) provides for visible production growth over the coming years. We believe that management’s guidance for a 7–10% annual production growth rate for 2013 is on the conservative side.

Management has not been shy of divesting assets, particularly those that do not fit into the company’s long-term growth plan. Recently, Marathon Oil announced that it has entered into an agreement to sell its 10% working interest in Block 31, offshore Angola. Should the deal go through, it will help the company to close approximately $2.9 billion in divestitures, almost reaching the upper end of its target of $1.5–$3 billion through the period of 2011 to 2013.

Finally, Marathon Oil – which spun off its refining/sales business into a separate, independent and publicly traded company Marathon Petroleum Corp. (MPC) in 2011 – remains in excellent financial health with net debt-to-capital ratio of 24%, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.

However, we think the current valuation is fair and adequately reflects the partnership’s future growth prospects. Moreover, Marathon Oil will take some time to fully absorb the outcome of the spin-off of its downstream business, which is expected to further limit its ability to generate positive earnings surprises.

This accounts for Marathon Oil’s current Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at Range Resources Corp. (RRC) and Clayton Williams Energy Inc. (CWEI) as a good buying opportunity. These North American energy explorers – sporting a Zacks Rank #1 (Strong Buy) – offer tremendous value and are worth buying now.
 

 
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