In this article, I have compared two prominent energy stocks, Marathon Oil Corporation (MRO) and France-based TotalEnergies SE (TTE), to determine which has better prospects. I believe TTE is the better investment choice for the reasons explained throughout this piece.
The Israel-Hamas war can potentially trigger a broader regional conflict and disrupt oil supply from the Middle East. As a result, there could be a sharp oil price increase, given the surging demand for energy.
OPEC+ forecasts demand growth in 2023 and 2024, citing a resilient global economy and China's expected demand increases. Demand is projected to rise by 2.44 million barrels per day (bpd) in 2023 and 2.25 million bpd in 2024.
In addition, according to the IEA Oil Market Report (OMR), oil demand is predicted to rise by 2.2 mb/d year-over-year, touching 102.2 mb/d this year.
TTE is a clear winner in terms of price performance. TTE has returned 29.3% over the past year, compared to MRO’s 0.9% gain. TTE soared 6.1% year-to-date, higher than MRO’s 5.3% returns.
Here are the reasons why we think TTE could perform better in the near term:
Latest Developments
On October 16, 2023, MRO secured a five-year LNG sales agreement with Glencore Energy UK Ltd. through its wholly-owned subsidiaries, starting on January 1, 2024. This agreement pertains to a portion of their equity natural gas production from the Alba Field in Equatorial Guinea. The pricing is tied to the Dutch Title Transfer Facility (TTF) index, with a fixed transportation fee, increasing Marathon Oil's exposure to the European LNG market.
In contrast, on October 17, TTE and SSE Renewables announced the full operational status of their Seagreen offshore wind farm, with a capacity of 1,075 MW. The project, located off the coast of Angus in the North Sea, represents TTE's largest operational offshore wind farm globally and is the world's deepest fixed-bottom wind farm. It was completed within three years, with a total investment of approximately $4 billion.
The wind farm has the capability to generate five terawatt hours of renewable electricity, enough to power nearly 1.6 million homes and prevent over 2 million tons of CO2 emissions annually.
Recent Financial Results
MRO’s revenues and other income decreased 34.3% year-over-year to $1.51 billion in the second quarter that ended June 30, 2023. Its income from operations declined 64.9% from the year-ago value to $454 million. In addition, the company’s adjusted net income and adjusted net income per share were $295 million and $0.47, down 68.4% and 63.6% year-over-year, respectively.
Conversely, for the second quarter that ended June 30, 2023, TTE’s revenues from sales stood at $51.53 billion. Its adjusted net income and net income per share were $4.96 billion and $1.99, respectively, while adjusted EBITDA stood at $11.11 billion.
As of June 30, 2023, TTE’s total current liabilities stood at $89.74 billion, compared to $109.78 billion as of December 31, 2022.
Past and Expected Financial Performance
MRO’s revenue and EBITDA have grown at 18.5% and 24.2% CAGRs over the past three years. Analysts expect MRO’s EPS to amount to $0.70 in the to-be-announced quarter, $0.83 in the current quarter, and $2.67 in the current year. Its revenue is likely to stand at $1.75 billion in the to-be-announced quarter, $1.81 billion in the current quarter, and $6.72 billion in the current year.
On the other hand, over the past three years, TTE’s revenue and EBITDA have grown at 17.8% and 35.8% CAGRs, respectively. Street expects TTE’s EPS to amount to $2.49 in the to-be-announced quarter, $2.65 in the current quarter, and $9.80 in the current year. Its revenue is likely to stand at $49.21 billion in the to-be-announced quarter, $47.50 billion in the current quarter, and $226.48 billion in the current year.
Profitability
TTE’s trailing-12-month asset turnover ratio of 0.78x is higher than MRO’s 0.35x. MRO’s trailing-12-month cash from operations of $4.62 billion is lower than TTE’s $38.50 billion. Moreover, TTE’s trailing-12-month ROTC of 14.03% is higher than MRO’s 9.59%.
Hence, TTE is more profitable.
Valuation
In terms of forward non-GAAP P/E, TTE is currently trading at 6.72x, lower than MRO, which is trading at 10.77x. TTE’s forward P/S multiple of 0.70 is lower than MRO’s 2.56. Also, TTE’s forward EV/Sales of 0.81x is lower than MRO’s 3.42x.
Thus, TTE is relatively more affordable.
POWR Ratings
MRO has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, TTE has an overall rating of B, which translates to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MRO has a D grade for Stability, in sync with its 60-month beta of 2.32.
On the other hand, TTE has a B grade for Stability, consistent with its 60-month beta of 0.87.
Among the 87 stocks in the Energy – Oil & Gas industry, MRO is ranked #65, while TTE is ranked #5.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Value, Sentiment, and Quality. Click here to view MRO ratings. Get all TTE ratings here.
The Winner
The global demand for oil and gas is set to remain strong this year. This robust demand and constrained supplies due to geopolitical issues will likely push oil prices higher. Industry players like MRO and TTE are well-placed to gain in the near future.
However, TTE’s relatively higher profitability metrics and lower valuation multiples make it the better investment choice than MRO.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated Energy – Oil & Gas stocks here.
What To Do Next?
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TTE shares were trading at $66.00 per share on Monday morning, up $0.12 (+0.18%). Year-to-date, TTE has gained 9.40%, versus a 10.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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