Behind Marathon Oil’s Enterprise Multiple



Marathon Oil’s enterprise multiple

For 2Q16, Marathon Oil’s (MRO) EV-to-adjusted-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio came in around ~11.3x, which is much higher than the company’s historical average EV-to-adjusted-EBITDA ratio of ~5.1x during the past five years.

MRO’s EV-to-adjusted-EBITDA ratio has risen steeply for the past two quarters, mainly due to the rise in EV and the fall in adjusted EBITDA. From 4Q15 to 2Q16 Marathon Oil’s enterprise value rose from ~$14.6 billion to ~$17.4 billion, whereas its trailing-12-month EBITDA fell from ~$2.2 billion to ~$1.5 billion during the same period.

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Forward enterprise multiple

Marathon Oil’s forward EV-to-EBITDA multiple is ~12x, which is higher than its own historical average of ~5.1x. For 2016, Wall Street analysts estimate that Marathon Oil’s EBITDA will fall ~35% YoY (year-over-year) to ~$1.4 billion.

Enterprise multiple

The EV-to-EBITDA ratio is also referred to as an enterprise multiple and is more preferred over the PE (price-to-earnings) ratio—especially for upstream companies—because it takes into account the debt of a company. In the enterprise multiple, enterprise value is the sum of market capitalization and market value of debt, minus total cash and cash equivalents.

Other upstream players

By comparison, upstream companies W&T Offshore (WTI), Pioneer Natural Resources (PXD), and Bonanza Creek Energy (BCEI) have enterprise multiples of ~9x, ~17x, and ~6x, respectively. Notably, the Direxion Daily Energy Bull 3X ETF (ERX) is a leveraged ETF that invests in domestic companies from the energy sector.


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