The equity research firm Merrill Lynch’s meeting with Exxon Mobil Corporation’s (NYSE:XOM) management opened up an opportunity to revisit its investment thesis on XOM. The firm gave a Neutral rating to the company stock by valuation but believes that the relative multiple is at a premium as compared to the other major companies.
Despite a modest upside in a $100 price target, the firm sees its rating system as appropriate at this point in the cycle.
The sell-side firm believes that in the long term, Exxon Mobil retains a string of options to redeploy capital, but new project sanctions which require approval from partners prepared inefficiently to raise spending at this stage in the cycle.
According to Merrill Lynch, XOM is poised for higher free cash flow, and a recent recovery in the oil price will prompt the company to restart its share buyback plan. Moreover, XOM has reported a flat productions outlook, but it has a potential of unconventional drilling, lifting current guidance of 4.0-4.2 million barrel of oil equivalent per day (BOEPD) by more than 200,000 BOEPD through 2020.
Due to a steep slump in the oil price which is trading at half of its value as compared June 2014 levels, the energy companies, including Exxon Mobil has been forced to slash billion of dollars in capital spending and sell assets, to keep it self-profitable. However, due to the recent recovery in the oil prices over the expectations of a potential oil production freeze, oil industry pundits are optimistic on the outlook of Exxon Mobil.
Of the total 24 analysts covering Exxon Mobil stock, seven endorse Buy, 11 recommend Hold, while remaining analysts advocate Sell. The 12-month average target price stands at $89.11, depicting an upside potential of 0.88% over the current stock price of $88.37.