Zacks Analyst Blog Highlights: Marathon Oil, ExxonMobil, Chevron, ConocoPhillips and Genzyme

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Jan 17, 2011, 09:30 ET

CHICAGO, Jan. 17, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Marathon Oil Corporation (NYSE: MRO), ExxonMobil (NYSE: XOM), Chevron Corp. (NYSE: CVX), ConocoPhillips (NYSE: COP) and Genzyme Corp. (Nasdaq: GENZ).

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Here are highlights from Friday's Analyst Blog:

Marathon Oil to Break in Two

Integrated energy firm Marathon Oil Corporation (NYSE: MRO) announced plans to separate its refining and sales business from its exploration and production operations, thereby creating two independent companies. Marathon had planned such a move when crude oil prices peaked more than two years ago but backed off later, when the financial crisis hit commodity markets.

The spin-off, which could take effect on June 30, 2011 subject to certain precedent conditions, will see the formation of a new downstream company called Marathon Petroleum Corp, expected to be the fifth largest domestic refiner. It will include Marathon's six refineries having a combined capacity of 1.1 million barrels a day and also deal with marketing and pipeline transportation.

The remaining business will continue as an upstream venture under the 'Marathon Oil Corp.' name and comprise the company's exploration and production unit and its Canadian oil sands operations.

The spin-off is proposed to be tax-free to shareholders of Marathon. Post separation, current stockholders of Marathon will get one share of Marathon Petroleum for every two shares held. Marathon Oil will remain in Houston, Texas, while the new company – to trade on the New York Stock Exchange under the symbol 'MPC' beginning July 1 – is likely to be headquartered in Findlay, Ohio.

Marathon's move to split itself into two is seen as an attempt to focus on its core, profitable business of finding and producing energy. Marathon also reasoned that it has become difficult to carry out together two different kind of businesses, considering the lack of physical integration between the two. Just about 5% of the crude churned out by the company was being utilized by its refineries, Marathon pointed out. The timing of the spin-off also makes sense, as it had almost winded up a major capital expenditure program that was running $7 – $8 billion annually.

We remain positive on the outlook for new Marathon post-split, as it holds the promise of unlocking significant value. Creation of two separate companies will allow both of them to pursue great opportunities in their respective market segments without the constraints of the parent company and better serve the needs of both investor groups.

Following the Marathon spin-off announcement, shares of the company were up approximately 6% in New York Stock Exchange trading on Thursday.

Marathon, the fourth largest U.S.-based integrated oil company, and behind ExxonMobil (NYSE: XOM), Chevron Corp. (NYSE: CVX), and ConocoPhillips (NYSE: COP), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term 'Neutral' recommendation on the stock.

Genzyme Cuts 2011 Outlook

Genzyme Corp. (Nasdaq: GENZ) recently provided a preliminary look at its results for the fourth quarter and full year ended December 31, 2010. While fourth quarter revenues increased 23% to $1.15 billion, full year revenues increased 2% to $3.97 billion. Both fourth quarter and full year revenues missed the Zacks Consensus Estimate of $1.18 billion and $4.34 billion, respectively.

The company expects to deliver fourth quarter earnings in the range of 80-85 cents per share, below its guidance of 90 – 95 cents. Preliminary earnings were below the company's guidance mainly due to lower than expected Cerezyme revenue and gross margins which were impacted by manufacturing costs.

Prelim Results in Details

Fourth quarter revenues from Genzyme's Personalized Genetic Health segment increased 46% to $508 million. However, full year revenues declined 10% to $1.7 billion. The Personalized Genetic Health segment was most adversely affected by the temporary shutdown of the company's Allston Landing facility in June 2009. The production and supply of two products – Cerezyme and Fabrazyme − were mainly affected by the temporary shutdown.

While the company is working on improving the supply situation, a delay in orders in Brazil, the loss of a lot in Japan, and a late lot release worsened by delayed shipping in Europe impacted Cerezyme revenues.

Cerezyme sales came in at $224 million in the fourth quarter, significantly above $105 million sales reported in the year-ago quarter. For the full year, Cerezyme sales were $722 million, down 8.9%.

Fabrazyme sales increased 6.9% to $62 million in the fourth quarter. For the year, sales declined from $430 million to $188 million.

Genzyme reported that full supply is available to patients on Cerezyme therapy. Meanwhile, Fabrazyme allocation has increased 82% in the fourth quarter on a sequential basis. Genzyme should be able to provide full supply of Fabrazyme in the second half of 2011 following the regulatory approval of Fabrazyme production at the company's Framingham manufacturing facility.

Other segments like Renal & Endocrinology, Biosurgery and Hematology and Oncology continued to grow during the fourth quarter. While Renal & Endocrinology grew 13% to $291 million, Biosurgery grew 10% to $157 million. The Hematology and Oncology segment increased 6% to $179 million.

2011 Outlook Cut

Based on preliminary results for 2010, Genzyme cut its guidance for 2011. The company now expects earnings in the range of $4.10 - $4.35 on revenue of $5 billion. Earlier, the company was expecting to earn $4.30 - $4.60 per share on revenues of $5.1 billion.

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