Analyst Cuts Murphy Oil Rating On Valuation, Ahead Of A Tougher 2021

Murphy Oil Corporation MUR joined the recent relief rally in exploration & production stocks, surging around 50% this month, despite earnings being lower through 2021, according to BMO Capital Markets.

The Murphy Oil Analyst

BMO’s Phillip Jungwirth downgraded Murphy Oil's stock from Outperform to Market Perform,  keeping the price target at $9.

The Murphy Oil Thesis

Following the recent rally, Murphy Oil’s stock already reflect a recovery in oil prices in 2021, Jungwirth said in the note.

Murphy Oil entered the downturn in the oil market with low leverage and a good hedge position. The analyst said the company had already slashed its dividend by half and the current payout of $77 million per annum could give it financial flexibility going ahead.

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Moreover, Jungwirth expects the King's Quay FPS monetization to generate in $125 million in the second quarter, leading to only a minimal increase in net debt in 2020.

The analyst cautioned, however, that 2021 could be a more challenging year for Murphy Oil, "as production will be from a lower base and hedge gains are reduced." Khaleesi Mormont and Samurai are still in the early phases of investment and the first oil is not expected until 2022.

“While oil prices will certainly remain volatile and the 2021 recovery could be sharper than the strip suggests,” Jungwirth wrote in the note.

MUR Price Action

Shares of Murphy Oil had declined close to 1% to $9.07 at time of publication Tuesday.