Finance

Critical Comparison: Marathon Oil Corporation (MRO) vs. Huntington Bancshares Incorporated (HBAN)

Marathon Oil Corporation (NYSE:MRO) shares are up more than 24.99% this year and recently decreased -7.72% or -$1.77 to settle at $21.16. Huntington Bancshares Incorporated (NASDAQ:HBAN), on the other hand, is up 4.05% year to date as of 10/10/2018. It currently trades at $15.15 and has returned -0.79% during the past week.

Marathon Oil Corporation (NYSE:MRO) and Huntington Bancshares Incorporated (NASDAQ:HBAN) are the two most active stocks in the Independent Oil & Gas industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Comparatively, HBAN is expected to grow at a 14.65% annual rate. All else equal, HBAN’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 59.91% for Huntington Bancshares Incorporated (HBAN). MRO’s ROI is -3.50% while HBAN has a ROI of 13.00%. The interpretation is that HBAN’s business generates a higher return on investment than MRO’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. MRO’s free cash flow (“FCF”) per share for the trailing twelve months was +0.10. Comparatively, HBAN’s free cash flow per share was +0.36. On a percent-of-sales basis, MRO’s free cash flow was 1.95% while HBAN converted 8.39% of its revenues into cash flow. This means that, for a given level of sales, HBAN is able to generate more free cash flow for investors.

Liquidity and Financial Risk

MRO’s debt-to-equity ratio is 0.00 versus a D/E of 0.95 for HBAN. HBAN is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

MRO trades at a forward P/E of 17.42, a P/B of 1.49, and a P/S of 3.38, compared to a forward P/E of 10.93, a P/B of 1.63, and a P/S of 4.60 for HBAN. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. MRO is currently priced at a -13.06% to its one-year price target of 24.34. Comparatively, HBAN is -13.23% relative to its price target of 17.46. This suggests that HBAN is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. MRO has a beta of 2.45 and HBAN’s beta is 1.35. HBAN’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. MRO has a short ratio of 1.25 compared to a short interest of 2.32 for HBAN. This implies that the market is currently less bearish on the outlook for MRO.

Summary




Huntington Bancshares Incorporated (NASDAQ:HBAN) beats Marathon Oil Corporation (NYSE:MRO) on a total of 8 of the 14 factors compared between the two stocks. HBAN higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. HBAN is more undervalued relative to its price target. Finally, BBD has better sentiment signals based on short interest.

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