Murphy Oil Corp. (MUR): Pullback seems overdone, though we are still Neutral-rated - Goldman Sachs - May 1, 2008 United States
What's changed
Murphy Oil reported 1Q2008 EPS of $1.93, below our $2.03 estimate although in line with the First Call consensus estimate of $1.94. The company provided an initial 2Q2008 EPS guidance range of $1.90 to $2.10 (versus our $2.05 estimate and the First Call consensus estimate of $2.01) based on E&P production of 115 MBOE/d, and also lowered its FY2008 production guidance to 130 MBOE/d versus 135 MBOE/d previously.
Implications
We maintain our Neutral rating on Murphy shares following mostly in-line 1Q2008 results. The company's lowered E&P production guidance has caused some worry among investors, with the shares down 7% on May 1, meaningfully underperforming the sector. We believe the sharp correction is overdone, though not surprising given that the shares had previously rallied strongly. Notably, we believe long-term growth is on track, with Murphy expected to grow E&P volumes 38% in 2008, 36% in 2009, and 14% in 2010. The company also has a reloaded exploration opportunity set, with 2H wells on Block K in deepwater Malaysia, offshore Congo, and in Australia's Browse Basin of particular interest. Following a period of relative outperformance, the shares trade at 6.1X 2008E EV/DACF, above the integrated oil average of 5.6X. Though not expensive relative to the company's growth and exploration optionality, we currently see a more compelling risk/reward in shares of both ConocoPhillips (Conviction Buy) and Chevron (Buy) among integrated oils and thus remain Neutral-rated on Murphy.
Valuation
We see 21% upside to our unchanged, $101, 12-month target price, based on asset value, P/E and cash flow valuation analyses.
Key risks
Key risk is sustained lower commodity prices. |
