Murphy Oil Corp. (MUR): Removing Murphy from Americas Buy List on relative valuation - Goldman Sachs - 12/14/07
What happened
We are removing Murphy Oil from the Americas Buy List on the basis of relative valuation and now rate it Neutral. Since being added to the list on February 2, 2007, Murphy shares are +53% versus +27% for XOI (AMEX integrated oil index) and +3% for the S&P 500. With its shares having reached our $78 12-month target price, we see meaningfully better risk/reward among the refining-leveraged companies we cover including Marathon Oil among integrated oils and Sunoco, Valero Energy, CVR Energy and Holly among pure-play refiners. Over the last 12 months, Murphy shares are +47% versus the XOI +24% and the S&P 500 up 5%.
Current view
We continue to have a favorable fundamental view of Murphy given its strong production outlook, significant E&P optionality and downstream restructuring potential. We believe the company remains on track to achieve the 40%+ E&P volume growth we expect in 2008, as its large Kikeh field appears to be ramping up as expected. We also recognize that additional upside exists should results from current high-impact exploration in the deepwater Malaysia and the Gulf of Mexico exceed the minimal value embedded in our target price. However, with Murphy’s share having performed very well this year, we believe its risk/reward relative to other opportunities in the sector is less compelling. Given recent sharp relative underperformance we currently view the risk/reward of refining-leveraged equities as particularly favorable. Our list of Buy-rated stocks now consists of only refining leverage companies, including Marathon Oil among the integrated oils, and pure-play refiners Sunoco, Valero Energy, CVR Energy and Holly (Sunoco also Conviction Buy) (see related note published today). Our 12-month target prices are based on asset value, P/E and cash flow valuation analyses, with the key risk being sustained lower commodity prices. There is no change to our 2007-2012 EPS estimates for Murphy. |
