Murphy Oil's (MUR) cash flow stands to benefit from higher crude prices, with no end to the Middle East conflict in sight yet, KeyBanc Capital Markets said in a note emailed Thursday.
The brokerage has upgraded the West Texas Intermediate outlook to $85 a barrel for this year from $65 at the start of 2026. That should generate incremental cash flows of $666 million for Murphy, which is expected to produce 33.3 million barrels in 2026.
None of that production is hedged, which means the oil exploration and production company can sell output at prevailing rates.
"Profound (cash flow) uplift from unhedged production stream is gamechanger for balance sheet and cash return optionality," KeyBanc analyst Tim Rezvan said.
KeyBanc upgraded Murphy's stock to overweight from sector weight, with a $48 price target.
The US and Israel attacked Iran at the end of February, resulting in the effective closure of the Strait of Hormuz. While there have been a series of talks following ceasefire deals, the parties are yet to finalize a framework for a long-lasting peace.
"The growing attacks in Lebanon by Israel appear to be a clear obstacle to a peace deal," Rezvan said. "We strenuously disagree with the view that an imminent agreement between the US and Iran will remove the risk premium that we believe should remain embedded in oil prices for the foreseeable future."
Shares of Murphy closed 2% higher on Thursday, and have gained 28% year to date.
The company's stock has pulled back 8% from its year-to-date high in April, creating an attractive entry point for investors ahead of second-quarter results, Rezvan said.
"As physical inventories dwindle and Israel continues attacks in Lebanon, we see upside risks to oil," he said.
Price: $40.31, Change: $+1.14, Percent Change: +2.91%
