Let’s face it. Oil companies in the United States are suffering, and they have been for much of the year. Marathon Oil (NYSE:MRO) is no different and shares of MRO stock have taken up residence in Penny Stock Land.
Oil – black Gold – Texas tea – is kind of on the ropes, thanks to a combination of events.
Paramount among these events is the novel coronavirus. The pandemic spawned by Covid-19 has devastated the global economy. Almost any company associated with the travel industry, from airlines to hotel owners to oil companies, has nearly been crushed by the rapid and intense economic slowdown.
Consumers dramatically altered their lives in response to the pandemic. They stayed home (and shopped online). Trips were canceled. Airplanes were parked because travelers were few. And layoffs and business closures have been legion.
One ripple effect has been a sharp drop in the demand for oil. As a result, prices for the historic commodity have fluctuated widely. The volatility has been impressive. It wasn’t that long ago that the price of oil was actually a negative number, a numerical oddity that stunned many investors with a clear indication that this was not a normal situation.
What About MRO Stock?
The Houston-based energy firm, which has a market cap of about $3.46 billion, can trace its roots to 1887 and Standard Oil, taking twists and turns over the century-plus to even be a part of United States Steel.
Few people would describe Marathon Oil as a high flier. Over the last five years, MRO stock chugged along in the upper teens and 20s, with some peaks and valleys along the way.
The company’s dividend, meanwhile, helped lure energy and income investors to buy its relatively affordable shares.
For instance, five years ago you could buy a share of MRO stock for $19.59. Two years ago, that share fetched $23.41. It hasn’t been that high since.
Over the last 12 months, MRO topped out at $14 and change. The stock’s 52-week low is $3.02. That’s probably less than you would pay for a bottle of soda and snack at the gas station’s store. Now, a gallon of gasoline would cost less – and that is part of Marathon’s woes.
Q2 Earnings and MRO Stock
On Aug. 5, Marathon reported its second-quarter performance.
It wasn’t pretty.
For the three months ending June 30, the company lost $750 million or 95 cents per share. The company said this figure included “certain items not typically represented in analysts’ earnings estimates.” So, taking away those “certain items” gave the company a net loss of $477 million or 60 cents per share.
Marathon trimmed costs and capital spending during the quarter, said Lee Tillman, the company’s chairman, president and CEO said in a statement:
“Amid tremendous commodity volatility, our ongoing response to the COVID-19 global pandemic, and a challenging year for our industry, we have remained focused on the factors we can control: how we allocate capital, how we manage our cost structure, and how we execute.”
Marathon Oil is scheduled to post its third-quarter earnings after the market closes on Nov. 4.
Debt and the Dividend
Interestingly, Marathon recently worked to get its balance sheet in better order by reducing debt. In a statement, the company said it reduced its debt by $100 million by tendering $500 million of its 2022 notes (which totaled $1 billion.)
The company also is restoring its dividend. The payout of 3 cents per share will be paid quarterly beginning Dec. 10 to MRO stock holders of record as of Nov. 18.
Tillman said the company can break even if oil is priced at $35 a barrel.
As my InvestorPlace colleague Chris Markoch said recently, Marathon’s difficult financial condition is tied to the price of oil. It is impossible to say if and when oil will rise. So much depends on whether Covid-19 flares up later this fall and winter and the timing of effective vaccines and treatment.
The Bottom Line
Marathon Oil has suffered along with other oil companies as the pandemic wreaks havoc on several segments of our economy.
Management has taken steps to cope with this damage by cutting spending and adjusting its debts. Officials say the company’s break-even point is oil priced at $35 a barrel, so the current price at $40 gives some breathing room.
The company also is reinstating its quarterly dividend in a bid for income investors.
Marathon deserves a cheer for bolstering its balance sheet. It’s clear the company is bracing for a long haul of uncertainty and price volatility.
Should you buy MRO stock? That depends on how badly you want to buy a cheap stock and are comfortable investing in any oil company these days. I recommend passing on it for now.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.