I just received the latest research report on MRO after yesterday's earnings announcement. I did not think the earnings miss yesterday was a big deal, and there was an over-reaction on the sell side.
MORGAN STANLEY EQUITY RESEARCH
MARATHON OIL CORPORATION (MRO.N): EARNINGS DISAPPOINT; MAINTAIN OVERWEIGHT - 27 Oct 2005
Marathonç—´ Q3 2005 operating EPS were $2.16/share, which compares to consensus estimates of $2.75/share. Results were below projections in E&P and R&M, with non-operating expenses similar to projections.
E&P & R&M Results Disappoint: In E&P, results were below projections, especially overseas. In International E&P, an unfavorable lifting variance and higher costs penalized profits. R&M also represented an area of weakness, although recovery is underway in Q4 2005 and profits are set to improve considerably.
Maintaining Estimates For 2005-2005: We are maintaining our earnings estimates for 2005 and 2006 at $8.25/share and $8.45/share respectively. Prices and volumes for crude oil and natural gas are likely to be significantly higher in the current period. Spreads in R&M remain strong as well, with normalized relationships throughout the value-chain likely.
Maintain Overweight: MRO, COP, XOM Favorites: Using our mid-cycle forecast of $5.20/share and a 75% relative earnings multiple we attain our $75/share price target. Integrated Oils COP (O, PT $80) and XOM (O, PT $76) represent our top picks in the sector.
Maintain Attractive View on Integrated Oils and R&M Integrated Oils appear 15% undervalued based on normalized returns on capital. Independent R&M represents the best value per unit of return in Energy.
Current Stock Rating: Overweight
Current Industry View: Attractive
ModelWare EPS actual (FY Ending): USD 3.72 (Dec 2004)
ModelWare EPS estimate (FY Ending): USD 8.25 (Dec 2005)
ModelWare EPS estimate (FY Ending): USD 8.45 (Dec 2006)
ModelWare EPS estimate (FY Ending): USD 8.50 (Dec 2007)
Current Price: USD 57.28 (Oct 27, 2005)
Target Price: USD 75.00
Market Cap (mm): USD 19,971
GM: Who do you believe?
Billionaire Kirk Kerkorian has take a 10% stake in GM's common stock, and on March 21,2005, Chairman & CEO Richard Wagoner bought 50,000 shares in the open market at prices ranging from $29.57-$29.65.
So, the bottom line here is, who do you believe? Kerkorian is on the Forbes billionaire's list and makes very few mistakes.
We own the GMAC preferreds (GKM), and we are collecting about 8.8% from where we first recommended the preferred. In addition, depending on what price you paid, you are also sitting on a 12-20% capital gain. Not too shabby.
So, I ask you again, who do you believe? I would like to own GM common as a value investor, but an ideal price for me would be under $25.
GM is going to roll out hybrid Tahoe's and Yukon's for 2007, and my bet is they will sell like hotcakes. Sure, everyone knows about GM's problem with their entitlement programs (pensions and healthcare), but I'm sure a solution is in the works.
The long term trend in our nation is for workers to save for their own retirements through 401k's. I think pensions, while great for employees are a thing of this past. Hopefully, the unions will wake up to the fact that companies like GM and Ford can no longer afford to be entitlement companies. If the unions do not wake up to this fact, Detroit will no longer be the motor city, and all assembly jobs will be shipped off to other countries.
