Nomura analysts weighed in yesterday on upstream energy firm Marathon Oil Corporation (NYSE:MRO) and telecommunications giant Verizon Communications Inc. (NYSE:VZ), following an earnings release and acquisition of telecommunications company XO, respectively. One analyst remains bullish on MRO despite cash flow challenges and disappointing 2016 capex guidance, believing its assets are undervalued by the market. The other remains neutral on Verizon though cites several advantages of the XO acquisition.

Marathon Oil Corporation

Analyst Lloyd Byrne of Nomura Holdings weighed in on Marathon Oil after the company released its fourth-quarter earnings report last week including disappointing capex guidance. The company posted revenues of ~$1.5 billion, compared to estimates of $1.2 billion and adjusted losses per share of ($0.48), in line with consensus estimates. According to the analyst, a priority in the exploration and production market is balancing shareholder needs while accurately managing assets and employees. He also states that due to market fluctuations, current investor focus remains on the need to increase debt, dividend fluctuations, divestiture of assets, covenant breaches, and equity sales.

The analyst states various initiatives by CEO Lee Tillman to get the company back on track, such as divesting $315 million, slashing the dividend, and reducing production costs and G&A. He specifically cites that in the earnings report, the company reduced its 2016 capex guidance to $1.4 billion, marking a 50% y/y decline. The analyst questions whether or not these measures suffice to generate enough cash for the company. Factoring in guidance and the $136 million dividend, the analyst predicts a $900 million deficit for 2016.

Byrne believes MRO does not have a liquidity issue, as the company as $1.2 in cash-on-hand and an untouched $3 billion line of credit until 2020. He also states that “too much debt is a problem” making its potential asset sales key for debt reduction. However, he notes an uncertain outcome. He explains, “While MRO has been ahead of many in looking to divest assets, the market remains very cautious on subsequent transactions given the fall in the commodity and recent commentary from other management teams.” He also notes investor worry regarding the issuing of equity, stating that in the earnings report, CEO Tillman “wouldn’t take that option off the table.”

The analyst believes the company will only successfully sell assets they are priced and timed well in order to protect shareholder value. He explains, “If MRO believes sales are coming to fruition and “bearable” prices can be fetched, utilizing its existing liquidity is far more shareholder friendly. Cutting capex again and G&A further must also be on the table.” He also states that the company’s assets are undervalued, with a heavy focus on “management’s ability to most economically (long and short term) manage the CF gap, and to protect the existing shareholder.”

Byrne reiterates a Buy rating on the stock with a $13 price target. Lloyd Byrne has a 40% success rate recommending stocks with an average loss of (21.2%) per recommendation. According to TipRanks’ statistics, out of the 6 analysts who have rated the company in the past 3 months, 3 gave a Buy rating while 3 remain neutral. The average 12-month price target for the stock is $12.75, marking a 73% upside from current levels.

Verizon Communications Inc.

Analyst Jeff Kvaal of Nomura weighed in on Verizon after it announced yesterday that it would purchase XO’s fiber-optic business network for $1.8 billion, expected to close in the first half of 2017. In this deal, Verizon will have access to XO’s fiber-based IP and Ethernet networks to optimize its enterprise and wholesale offerings and to densify its cell network.

According to the analyst, this deal will result in NPV synergies of $1.5 billion, worth the initial investment. The analyst cites many reasons why he believes this deal is the right move for Verizon, including their ownership of over 50% of LMDS spectrum in U.S markets such as NYC, LA, Chicago, and Denver, and cites particular success in D.C.

He explains, “Verizon’s acquisition of XO Communications’ fiber and Ethernet assets for $1.8bn makes strong strategic sense, in our view, assuming NPV synergies of $1.5bn. The transaction offers fiber for backhaul and SMB customer base and removes a low-cost competitor. Most important, Verizon gains access to XO’s valuable LMDS spectrum (28-31GHz), ideal for small cell densification.”

Kvaal reiterates his Neutral rating on shares with a $47 price target. Jeff Kvaal has a 45% success rate recommending stocks with an average return of 8% per recommendation.Jeff Kval Stats

According to TipRanks’ statistics, out of the 4 analysts who have rated the company in the past 3 months, 2 gave a Buy rating while 2 remain on the sidelines. The average 12-month price target for the stock is $52.33, marking a 4% upside from current levels.