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On Wednesday, Morgan Stanley (NYSE:MS) analysts downgraded Murphy Oil Corporation (NYSE:MUR) stock rating from Equal-weight to Underweight, adjusting the price target to $37.00 from a previous target. According to InvestingPro data, nine analysts have recently revised their earnings estimates downward for the upcoming period, with the stock currently trading at $31.49. The downgrade is attributed to expectations that Murphy Oil's production guidance for the upcoming year will fall short of consensus forecasts, alongside its fourth-quarter results. Despite these concerns, InvestingPro data shows the company maintains a GOOD Financial Health Score, with particularly strong profitability metrics and a remarkable 54-year track record of consistent dividend payments.
Analysts predict a decrease in the 2025 oil production forecast from 97 thousand barrels per day (kb/d) to 92 kb/d, which represents a year-over-year growth of approximately 2%, significantly lower than the prior estimate of around 8%. This adjustment is due to anticipated additional workover activity in the Gulf of Mexico and a slower ramp-up at the Terra Nova field in offshore Canada, leading to a projection of flat year-over-year oil production in both regions.
Despite Murphy Oil's recent exploration achievements in Vietnam, which could offer long-term benefits, the near-term free cash flow (FCF) is expected to be constrained by investments in longer-cycle projects and further exploration activities. Morgan Stanley forecasts that the average capital expenditure for Murphy Oil in 2025-2026 will increase by roughly 20% compared to estimates for 2024, aligning with the company's guidance but approximately 3% higher than the consensus.
As a result of this anticipated higher spending, the estimated FCF to equity yield for Murphy Oil in 2025 is projected to be around 9% at prices close to the strip ($73.50 West Texas Intermediate), which is below the median of 13% for oil exploration and production companies. Currently, the company trades at an EV/EBITDA multiple of 3.86x and offers a dividend yield of 3.81%. Get access to more comprehensive financial metrics and exclusive insights with InvestingPro, including detailed valuation analysis and expert recommendations. The forecast also indicates a below-average yield for the year 2026.
The valuation leading to the $37.00 price target is based on a 50/50 blend of net asset value (NAV), which is calculated at $37 per share, and an enterprise value to EBITDAX (earnings before interest, taxes, depreciation, amortization, and exploration expenses) based valuation of $38 per share.
In other recent news, Murphy Oil Corporation has been the subject of several major developments. The company reported a robust Q3 2024 performance, with a production rate of 185,000 barrels of oil equivalent per day and a net income of $139 million. Additionally, Murphy Oil announced a $194 million stock repurchase, enhancing shareholder returns. The company has also revealed plans for a partial redemption of its senior notes due in 2027, amounting to $79 million.
Murphy Oil's recent leadership transition has seen the retirement of CEO, Roger W. Jenkins, and the appointment of Eric M. Hambly, effective from January 1, 2025. Analyst firm JPMorgan maintained a neutral rating on the company while adjusting the price target from $40 to $37. Mizuho (NYSE:MFG) Securities, on the other hand, reiterated its Outperform rating on Murphy Oil, citing robust growth potential from 2025 to 2027.
The company's ongoing operations include a two-well exploration program in Vietnam, which has resulted in a significant oil discovery at the Hai Su Vang-1X exploration well. Murphy Oil is also constructing the Lac Duc Vang field platform, expected to add 10 to 15 thousand barrels of oil per day to the company's net volumes. The company's future production guidance indicates a range between 181,500 and 189,500 barrels of oil equivalent per day for Q4.
These developments highlight Murphy Oil's commitment to operational excellence, strategic growth, and shareholder returns. The company, with a track record of maintaining dividend payments for 54 consecutive years, continues to demonstrate financial stability and a promising outlook.
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