Exxon (XOM) Upgrade - Jan 11

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Exxon (XOM) Upgrade - Jan 11

Post by dan_s »

MS Research Analyst Devin McDermott is upgrading XOM ($57 PT) to OW on an improving FCF outlook and
dividend sustainability. He highlights that from 2000-15 XOM generated returns that eclipsed both peers and the
broader market, averaging over 20%. Since becoming the world's largest company in 2013, Devin points out that
the stock has shed a remarkable $230 B in market cap as returns and cash flow have fallen with lower commodity
prices. Over the same period, XOM's yield has risen from 0.6x to 5x the S&P 500 (and from 0.6x to 1.35x closest
peer CVX) as dividend sustainability has been called into question. Now, Devin highlights that proactive spending
cuts and improving margins support his outlook for above consensus FCF. With the dividend and capex
organically covered this year for the first time since 2018, Devin expects outsized yield compression vs peers as
energy markets recover post-COVID. After having a preference for CVX (OW, $113 PT) over XOM for the past
several years, Devin is shifting his view: he upgrades XOM and prefers it over CVX for 2021. XOM is now
Devin’s top pick within US Integrateds. Devin is also upgrading his Integrated Oil industry view from In-Line to
Attractive
Dan Steffens
Energy Prospectus Group
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