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Gold/Mining/Energy : Marathon Oil -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (14)	2/2/2008 7:45:34 AM
From: Dennis Roth	Read Replies (1) \| Respond to of 17

Marathon Oil Corp. (MRO): Sticking with Buy on inexpensive valuation and bullish refining view - Goldman Sachs - 02/01/08 What's changed Marathon Oil shares fell 7.5% on January 31, sharply underperforming the +0.2% rise in the XOI (AMEX integrated oil index) following a host a disappointing news items released as part of its 4Q 2007 earnings report. Specifically, Marathon (1) lowered 2008 E&P volume guidance; (2) significantly raised 2008 capital spending; (3) reported lackluster 2007 reserve replacement; and (4) missed consensus EPS for 4Q 2007. Implications While we view the 7.5% decline in Marathon's shares as an over-reaction, especially since it had already been lagging the sector in recent months, we cannot say we were surprised at investor reaction given the disappointing news announced during a period of time when markets in general have been quite unsettled. Even though we have lowered our 2008-2012 EPS estimates for Marathon, the shares still appear very inexpensive to us and we think consensus estimates for 2008 and 2009 are too low given our bullish refining and crude oil view. We attribute the bulk of Marathon's disappointing news to timing issues, in particular with the E&P production shortfall as well as the higher refining capital spending. Valuation We see 38% total return upside to our revised $64 ($68 before) 12-month target price, which is based on asset value, P/E and cash flow valuation analyses. Marathon shares appear very inexpensive on 2008E metrics trading at 5.6X on P/E and 2.9X EBITDA on our estimates. Even if we assume a severe 10% hit to consensus EPS of $6.67, the shares are trading at just 7.1X P/E. In our view, Marathon shares can recover sharply and sooner than might normally be the case following a disappointment, if refining margins recover strongly this spring as we forecast. Key risks Key risk is sustained lower commodity prices.