Earnings

Comparing Valuation And Performance: Marathon Oil Corporation (MRO), Callon Petroleum Company (CPE)

The shares of Marathon Oil Corporation have increased by more than 25.10% this year alone. The shares recently went down by -0.42% or -$0.09 and now trades at $21.18. The shares of Callon Petroleum Company (NYSE:CPE), has jumped by 12.26% year to date as of 05/16/2018. The shares currently trade at $13.64 and have been able to report a change of -4.35% over the past one week.

The stock of Marathon Oil Corporation and Callon Petroleum Company were two of the most active stocks on Wednesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. MRO has an EBITDA margin of 45.93%, this implies that the underlying business of MRO is more profitable. The ROI of MRO is -3.50% while that of CPE is 5.70%. These figures suggest that CPE ventures generate a higher ROI than that of MRO.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, MRO’s free cash flow per share is a negative -1.17, while that of CPE is also a negative -0.01.

Liquidity and Financial Risk



The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for MRO is 1.50 and that of CPE is 0.60. This implies that it is easier for MRO to cover its immediate obligations over the next 12 months than CPE. The debt ratio of MRO is 0.00 compared to 0.35 for CPE. CPE can be able to settle its long-term debts and thus is a lower financial risk than MRO.

Valuation

MRO currently trades at a forward P/E of 26.74, a P/B of 1.50, and a P/S of 3.51 while CPE trades at a forward P/E of 10.87, a P/B of 1.44, and a P/S of 6.85. This means that looking at the earnings, book values and sales basis, MRO is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of MRO is currently at a 0.24% to its one-year price target of 21.13. Looking at its rival pricing, CPE is at a -18.42% relative to its price target of 16.72.




When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), MRO is given a 2.30 while 1.90 placed for CPE. This means that analysts are more bullish on the outlook for MRO stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for MRO is 1.08 while that of CPE is just 9.80. This means that analysts are more bullish on the forecast for MRO stock.

Conclusion

The stock of Marathon Oil Corporation defeats that of Callon Petroleum Company when the two are compared, with MRO taking 6 out of the total factors that were been considered. MRO happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, MRO is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for MRO is better on when it is viewed on short interest.

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