The multinational oil and gas company, Exxon Mobil Corporation (XOM), is witnessing a steady rise in its share price. Oil prices are hitting two and a half year highs, and the Street is signaling a positive outlook for the Oil & Gas sector as a whole. Shares rose 3.6% to close at $64.33 on June 15. (See ExxonMobil stock chart on TipRanks)
BofA Securities analyst Doug Leggate recently maintained a Buy rating on the stock with a price target of $90, implying 40% upside potential to current levels.
According to Leggate, the support from shareholders that enabled activist firm Engine No. 1 to win its third of 12 board seats has more to do with the company’s capital discipline and dividend policy and less with climate control measures.
According to the analyst, with the latest rise in oil prices and spending constraints in the past year, XOM is most likely to hike its dividend by the fourth quarter of FY21 and will also be able to cap its net debt within the targeted 20% – 25% range.
Leggate said, “We believe ExxonMobil is poised for a relative recovery after several years of lagging performance. The starting point is a step change in upstream portfolio leverage that we believe has been masked by the collapse in oil prices. Since 2013, XOM has started over 30 major projects with improved cash margins versus the legacy base business, and enabled by higher oil leverage that was masked by the coincident drop in oil prices.”
Another analyst, Manav Gupta of Credit Suisse, recently reiterated a Hold rating on the stock and lifted the price target to $72 (12% upside potential) from $69. Shares have gained 55% year-to-date.
Gupta believes that as refined product demand reaches pre-pandemic levels, XOM’s FCF levels will turn positive, and the company will be in a position to raise dividends between Q2 and Q4 FY2021.
Exxon scores an 8 of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
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