On Wednesday, KeyBanc Capital Markets adjusted its outlook on Murphy Oil Corp . (NYSE:MUR) shares, reducing its price target to $50 from the previous $54 while maintaining an Overweight rating on the stock. The firm's analyst pointed to the upcoming third-quarter earnings, highlighting the importance of cash operating expenses (opex) normalization following a period of increased spending for maintenance and workovers in the Gulf of Mexico during the first half of 2024.
The analyst anticipates a decrease in cash opex to $18.72 per barrel of oil equivalent (boe) in the third quarter, an 11% reduction quarter over quarter, with a continued downward trend towards $18/boe in the fourth quarter and reaching $17/boe in 2025. This normalization is seen as crucial for the projected sustained increase in free cash flow (FCF), which is expected to be channeled towards share repurchases.
Murphy Oil's repurchase activity has been revised upward for the third quarter to $125 million, up from the initially assumed $75 million, following the company's report of spending $94 million in the first two months of the quarter alone. The analyst also expects the company to continue repurchasing $100 million or more in shares per quarter through the end of 2026.
From an operational standpoint, no significant updates are anticipated. The first exploration well in Vietnam, which began in late September, is estimated to be a 60-day endeavor. Moreover, the firm has updated its model to reflect revised forecasts for oil, natural gas, and natural gas liquids (NGL) prices.
The adjustments also take into account an increase in third-quarter Canadian onshore natural gas realizations, which have been positively impacted by forward sales that counterbalance weaker spot AECO pricing, recorded at $0.66 per thousand cubic feet (mcf) in the third quarter.
In other recent news, Murphy Oil has seen significant developments in its operations and leadership. The company has completed necessary project workovers and maintenance in the Gulf of Mexico, which is expected to provide clearer insights into the operations outlook. Mizuho Securities maintains an Outperform rating on Murphy Oil, anticipating an acceleration of share buybacks under the "Murphy 3.0" initiative and a boost in shareholder value.
In leadership transitions, Eric Hambly is set to become CEO by the end of the year, succeeding Roger Jenkins. Furthermore, Murphy Oil has expanded its board with the appointment of Robert B. Tudor, III, who brings extensive experience from his tenure at Goldman Sachs and his current role at Artemis Energy Partners.
Murphy Oil's third-quarter update is projected to show mixed results, with earnings per share and cash flow per share estimates falling short of street estimates. However, the company anticipates an increase in production volumes in the fourth quarter, driven by reduced storm-related downtime and incremental outputs from various assets.
In financial moves, Murphy Oil has been active in share buybacks, repurchasing approximately $94 million of stock in the third quarter. The company also declared a quarterly cash dividend of $0.30 per share. In a concerning development, U.S. authorities have arrested a British individual, Robert Westbrook, on charges of hacking into undisclosed companies, including Murphy Oil, to gain insider information on their expected earnings. These are the recent developments concerning Murphy Oil.
InvestingPro Insights
Adding to KeyBanc Capital Markets' analysis, InvestingPro data provides further context on Murphy Oil's financial position. The company's P/E ratio of 8.7 suggests it may be undervalued relative to its earnings, aligning with KeyBanc's Overweight rating. This is further supported by the stock trading near its 52-week low, with a price at 67.89% of its 52-week high.
InvestingPro Tips highlight Murphy Oil's strong dividend history, having maintained payments for 54 consecutive years and raised dividends for the past 3 years. The current dividend yield stands at 3.61%, which could be attractive to income-focused investors. This consistent dividend policy aligns with the company's focus on returning value to shareholders, as mentioned in the analyst's report on share repurchases.
The company's profitability over the last twelve months and analysts' predictions of continued profitability this year support the expectation of sustained free cash flow generation. However, it's worth noting that 12 analysts have revised their earnings downwards for the upcoming period, which investors should consider alongside the positive outlook on cash opex normalization and share repurchases.
For readers interested in a more comprehensive analysis, InvestingPro offers 11 additional tips for Murphy Oil, providing a deeper understanding of the company's financial health and market position.
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