In a report published Thursday, UBS analyst William A. Featherston upgraded the rating on Murphy Oil Corporation MUR from Sell to Neutral, while reducing the price target from $41 to $36.
The recent sell-off in Murphy Oil's shares has brought the stock's valuation in-line with the company's peers, analyst William Featherston said.
"Despite its strong balance sheet, we don't believe MUR warrants a premium valuation to peers given its large FCF deficit, lack of long-term growth visibility, & below average debt-adjusted growth outlook," Featherston added.
Murphy Oil reported 2Q15 clean EPS of ($0.48), better than the UBS estimate of ($0.58), due to higher-than-expected production levels and liquids realizations. The company's CFPS declined 51 percent y/y to $2.13, although it was 14 percent higher than the UBS estimate of $1.87.
The company's production for the quarter declined 4 percent y/y to ~202 MBoed, but was better than the UBS estimate of ~198 MBoed as well as its own guidance of 197 MBoed. Murphy Oil raised its full-year volume guidance by ~3 MBoed to 200-208 MBoed.
In the report UBS noted, "The company's 2015 capex budget of $2.3 bn is expected to cause a FCF deficit of over $1 billion at current strip prices."
Murphy Oil intends to shift its exploration strategy to a more focused, lower risk program due to the lack of success over the last several years.
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