Marathon Oil Corporation

MRO Details

A Look at MRO’s 2QFY20 Key Financial Highlight: Marathon Oil Corporation (NYSE: MRO) is engaged in oil and natural gas exploration and production and has its business operation in the United States and Africa. During the quarter, the company reported an adjusted net loss of 60 cents per share, as compared to the previous corresponding quarter’s earnings figure of 23 cents per share. The company’s bottom-line was primarily impacted by the lower commodity price due to COVID-19 outbreak. Revenues during the quarter stood at $272 million, down from the year-ago figure $1.43 billion. Notably, the coronavirus crisis has led to significant ambiguity surrounding the near-term macroeconomic and historic oil market crash. During the quarter, total costs stood at $975 million, lower than the year-ago figure of $1.18 billion. The company exited the period with cash and cash equivalents of $522 million, with long-term debt amounting to $5.5 billion. Net operating cash flow for the period came in at $9 million as compared to $797 million reported in 2QFY19. 

2QFY20 Key Highlight (Source: Company Reports)

Key Risks: The view for exploration and production business seems dismal. The slump in commodity prices due to rising coronavirus pandemic along with the oil price war between Russia and Saudi Arabia is hurting energy demand worldwide. Currently, there is no significant sign of recovery in oil consumption. Marathon Oil is likely to get battered by this declining trend in the crude oil price. Further, competition in the market and debt laden balance sheet add to the woes.

Outlook: The company has raised its current-year oil output outlook to 190,000 net barrels per day. The company has revised its total capital expenditure guidance for 2020 to $1.2 billion, as compared to the previous view of $1.3 billion, stemming from robust implementation and improved capital efficiency.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of MRO closed at $5.94 with a market capitalization of ~$4.69 billion. The stock made a 52-week low and high of $3.02 and $14.39, respectively, and is currently trading below the average of its 52-week trading range. At the closing price of $5.94, current dividend yield for the stock stands at 2.48%. The stock has given positive returns of ~12.9% and 4.5% in the one month and three months period. The company’s debt to equity ratio stood at 0.46x in Mar’20, lower than the industry median of 0.92x. Considering the above factors, we have valued the stock using  P/CF multiple based illustrative relative valuation method and arrived at a target price of lower double-digit upside (in % terms). For the purpose, we have taken peers like EOG Resources Inc (NYSE: EOG), Devon Energy Corp (NYSE: DVN), and Cimarex Energy Co (NYSE: XEC), to name few. Considering the above factors, we give a “Hold” recommendation on the stock at the closing price of $5.94, down 1.66% on 11 August 2020.

MRO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Inovio Pharmaceuticals, Inc.

INO Details

A look at INO’s 2QFY20 Operational Highlights: Inovio Pharmaceuticals, Inc. (NASDAQ: INO) is a biotechnology company focused on designing DNA medicines to treat/cure diseases associated with HPV, cancer, and infectious diseases. INO recently declared its June quarterly results, wherein the company reported total revenue of $267,187 up from $135,673 on the previous corresponding period. Research and development expenses for the quarter stood at $22.4 million, down marginally from $22.5 million, due to an increase in contra-research and development expenses from grant agreements, which was more than offset by higher drug manufacturing expenses related. General and administrative expenses increased to $11.1 million from $5.9 million in Q2FY19, on account of higher employee compensation expenses, depreciation expense and legal expenses. The company reported a net loss of $128.7 million, compared to the loss of $29.4 million in the previous corresponding period. As on 30th June 2020, the company had total current assets of $382,062,453, which includes cash and cash equivalents of $215,432,713 and short-term investments of $156,231,102.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Other Recent Updates: Recently, the company informed that its DNA vaccine INO-4800 to address COVID-19 is effective in protecting non-human primates from live virus challenge 13 weeks after the last vaccination. In another update, the company announced that it has received approval from the U.S. Food and Drug Administration (FDA) for INO-3107 for the treatment of recurrent respiratory papillomatosis (RRP). Notably, INO’s DNA medicine is being evaluated in a Phase 1/2 trial. 

Key Risks: On the flip side, the company has been carrying the burden of operational inefficiency for the past few quarters. Increasing R&D and G&A expenses related to the COVID-19 and VGX-3100 clinical trials are likely to reduce operating margins. Also, the company is exposed to risks relating to foreign operations that are required to be addressed from time to time. The company also faces stiff competition from peers which adds to the woes. However, the company is taking necessary steps to ensure the safety and well-being of patients and caregivers, curtail the risk of supply disruption, and achieve its growth strategies. 

Stock Recommendation: The stock of INO closed at $14.62 with a market capitalization of ~$2.3 billion. The stock made a 52-week low and high of $1.92 and $33.79 and is currently trading at the lower band of its 52-week trading range.  The stock has generated robust returns of ~22.86% and ~487.15% in the last three months and one year, respectively. The surge in share price can be attributed to positive preclinical study data for IN0-4800, its COVID-19 DNA vaccine. The studies revealed that vaccination with INO-4800 produced strong antibodies along with T cell responses in mice and guinea pigs. The company’s corporate strategy is to develop, protect and utilize its differentiated immunotherapy platform. Going forward, the company seeks to progress and validate an array of HPV related diseases, as well as cancer and infectious disease immunotherapy and vaccine products. The company’s debt to equity ratio stood at 0.42x in Mar’20, as compared to the industry median of 0.00x. On the valuation front, the stock is trading at a P/BV multiple of 16.1x as compared to the industry median (Healthcare) of 3x on TTM (Trailing Twelve Months) basis and thus, seems overvalued.  Considering the aforesaid facts, current trading levels and business prospects, we have a wait and watch stance on the stock at the closing price of $14.62, down 23.01% as on 11 August 2020.

INO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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