The Energy Information Administration has predicted that oil prices will range between $52 and $53 per barrel throughout 2017. At that price, Marathon Oil (MRO) may be capable of putting its income back into positive territory. The company has reported negative income for the last four quarters.
The catalyst for that turnaround would be not only sustained oil prices above $50, but Marathon’s stellar cash flow, which has been paying its dividend and capital expenditures (CAPEX). That achievement occurred with oil averaging $45 per barrel.
Marathon Oil is set to report earnings on February 15 for at least part of the most recent quarter. If oil stays above $50, Marathon could become profitable again in 2017. (See also: OPEC Hints at Further Production Cuts in May.)
To analyze the momentum, a look at the past three quarters reveals increased revenues with reduced cost of revenues, and pared losses in operating income. In other words, Marathon has established a short-term trend of recovering and may be setting up for a turnaround.
The chart shows the stock in a sideways pattern after it broke sharply upwards on high volume in early December 2016. The current action could be the beginning of a base that could form the foundation for a breakout.
The company has a $3 billion line of credit it can use to acquire assets to increase revenues and income.
The reasons for buying MRO stock at this time are admittedly based more on potential than a positive track record. But those who want to get in early on an energy company that may be poised to soar should put this stock on a watch list. The wisest course of action would be to buy the stock on a breakout from a well-developed base, but some investors have done well buying such stocks while they are trading tamely in their bases.
Just keep in mind that you would be buying potential, and there is no guarantee that the current momentum will continue for Marathon. Place stop-loss orders for any share purchases.