Shares of Marathon Oil (MRO -1.36%) tumbled 27.2% in February, according to data provided by S&P Global Market Intelligence. Among the factors weighing on the oil company's stock were its fourth-quarter earnings, its outlook for 2020, and oil prices.
Marathon Oil reported its fourth-quarter results last month. It posted $0.07 per share of adjusted earnings, which missed the analysts' consensus estimate by $0.03 per share. While its U.S. oil production rose 9% year over year after adjusting for asset sales, sinking oil and gas prices weighed on profitability.
Marathon also unveiled its 2020 outlook, which includes a plan to trim its capital budget by about 10%. Because of that, it only expects its U.S. oil production to grow by about 6% at the midpoint of its forecast. Analysts weren't thrilled with the outlook, with Capital One, for example, calling it "mildly disappointing."
One of the highlights of Marathon Oil's 2020 game plan is the expectation that it would generate lots of free cash flow this year, since it can fund its capital budget at $47-per-barrel oil. At $50 oil, the company estimates that it could produce a cumulative $600 million in free cash after paying its dividend by the end of next year. Unfortunately for Marathon, crude prices have weakened considerably over the past few weeks and were recently below its $47-a-barrel break-even level. If oil keeps falling, the company might need to reduce spending, which would impact its growth rate.
Marathon Oil initially anticipated that it would produce a gusher of free cash flow this year, which would give it the funds to repurchase more of its stock. However, with oil prices tumbling 13% last month, the energy company might not produce any excess cash this year if crude doesn't recover. On the other hand, if oil does bounce back, Marathon's shares could spring higher as it uses the excess cash it can produce at higher oil prices to repurchase its beaten-down stock.