ConocoPhillips' Marathon Deal: Analyst Sees Short-Term Pain, Long-Term Gain

Roth MKM analyst Leo Mariani expects ConocoPhillips COP to have a negative reaction compared to its peers today following its deal to acquire Marathon Oil Corporation MRO in an all-stock transaction with an enterprise value of $22.5 billion.

As per the agreement, Marathon Oil shareholders will receive 0.2550 ConocoPhillips shares for each share of Marathon Oil they hold.

The buyout is expected to be immediately accretive to ConocoPhillips on earnings, cash from operations, free cash flow, and return of capital per share to shareholders as well as MRO has less than a $30 per bbl WTI cost of supply.

The analyst is dubious on this last point noting that MRO’s assets in the Eagle Ford, Bakken and Mid-Continent are quite a bit higher cost.

Overall, the analyst remains Buy rated with a $144 price target due to COP’s strong balance sheet, internationally diversified asset base, lower base production declines compared to peers, consistent low-single-digit production growth, and strong returns of capital to shareholders.

Mariani estimates EPS of $9.25 for FY24 and $10.14 for FY25.

Investors can gain exposure to COP via IShares U.S. Oil & Gas Exploration & Production ETF IEO and and Westwood Salient Enhanced Energy Income ETF WEEI.

Price Action: COP shares are down 4.19% at $113.98 at the last check Wednesday.

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