The actions of Marathon Oil Corp. were sold on Tuesday to exit the 10-week closing high of the previous session after Morgan Stanley became bearish on the oil and gas company, citing concerns about high debt levels and a more difficult prospect.
Analysts led by Devin McDermott downgraded stocks to a rare underweight to neutral. It maintained its target price at $ 5, 14% lower than current levels.
For Morgan Stanley, an underweight expresses the analyst’s conviction that the stock’s performance over the next 12 to 18 months will be lower than the average performance of its peers. Of the 3,204 stocks covered by Morgan Stanley analysts, only 553, or 17%, are underweight, compared to 45% of the same weight and 38% overweight.
“As the company takes the right steps to preserve liquidity in response to falling oil prices, [Marathon Oil] contested screens against pairs with a 2021 [West Texas Intermediate] breakeven point of $ 37 per barrel (in the upper half of our coverage), and a year-end 2021 leverage effect of 4.5X in the band, above the median of around 2X “McDermott wrote in a note to clients.
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Stock of marathon oil
MRO
It fell 4.3% to $ 5.82 on Tuesday after rising 8.4% on Monday to reach its highest level since May 6, in a broad rally in the energy sector and the stock market . Since the beginning of the year, the stock has dropped 57.1%, while the SPDR Energy Select Sector fund is listed on the stock exchange.
XLE
fell 37.0% and the S&P 500 Index
SPX
it lost 9.5%.
FactSet, MarketWatch
Meanwhile, crude oil futures for WTI
CL00
It rose 0.5% to $ 31.82 on Tuesday, but fell 47.9% this year against the backdrop of oversupply and falling demand due to the COVID pandemic- 19. See Futures Movers.
McDermott said the valuation of Marathon Oil stocks more or less matches that of its North American peers. He said the assessment was “unwarranted” given the company’s “most contested view”.
Earlier this month, Marathon Oil announced a first-quarter adjusted loss that met expectations, while revenues exceeded expectations. But the company withdrew its one-year financial forecast, citing uncertainty about the effects of the COVID-19 pandemic, and cut its investment budget for the year almost in half to $ 1.3 billion. The company also suspended payment of dividends and share buybacks.
Read also: Marathon Oil loses losses and cuts its spending budget.
Morgan Stanley downgrade one day after Moody’s Investors service credit rating service changed your Marathon Oil credit outlook to stable negative, deteriorating credit parameters and exposure to continued low oil prices. A negative outlook suggests that the next rating move will likely be lowered.
Since Moody’s rates the Marathon Oil credit to Baa3, which is the lowest investment grade, a downgrade would place the grade in speculative quality or in “undesirable” territory.
S&P Global Ratings assessed Marathon Oil’s credit at BBB-, also the company’s lowest investment rating, with a negative outlook as it downgraded BBB credit on March 26.