Recently, U.S. President Joe Biden criticized Exxon Mobil (NYSE: XOM) and stated that it “made more money than God this year.” Energy giants have gained immensely from soaring oil and gas prices driven by a recovery in demand following the reopening of the economy and the Russia-Ukraine crisis. Biden urged refining companies to ramp up their supply to mitigate the burden of high prices on consumers.
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Exxon shares have skyrocketed 55% year-to-date, significantly outpacing the broader market.
A looming recession and the persisting COVID-19 situation in China (the world’s largest importer of oil) could impact demand and might bring down oil and gas prices to some extent, and consequently the likes of XOM and its peers. However, some Wall Street analysts continue to be bullish on Exxon.
Will the Stock Rise Further?
J.P. Morgan analyst Phil Gresh says Exxon “still has room for more valuation re-rating” following its de-rating in the 2020 downturn.
Gresh feels that given Exxon’s focus on capital discipline and an improved balance sheet, the company is in a much better position to return additional capital to shareholders, while still pursing attractive growth opportunities of major assets.
Gresh further adds that the market has given only some credit for the improvement in Exxon’s position, particularly when compared to rival Chevron (CVX). He noted that Exxon currently trades at a discount to Chevron “on essentially all important valuation metrics.”
Based on his bullish stance, Gresh has a Buy rating on Exxon with a price target of $108 (13.86% upside potential).
Recently, Evercore ISI analyst Stephen Richardson upgraded Exxon to a Buy from Hold and raised his price target to $120 (26.52% upside potential) from $88, as he feels that the stock is still trading at a discounted valuation compared to historical levels.
Richardson feels that Exxon’s long-term earnings growth would be fueled by “upstream upgrading (50% volumes from key growth areas: Guyana, Permian, Brazil and LNG), doubling high-value, high-performance products volume (performance chemicals, lubricants and biofuels), as well as cost reductions ($5 Bn of structural cost improvements secured, $4 Bn to come).”
Further, Richardson believes that short-term catalysts for Exxon stock include upside revision to Q2 and full-year earnings due to rising oil and gas prices and solid refining margins. The analyst also noted that Exxon has the maximum exposure to downstream among the “Big Oils.”
Overall, the Street is cautiously optimistic on Exxon stock, with a Moderate Buy consensus rating based on 10 Buys and seven Holds. The average Exxon price target of $101.57 implies 7.08% upside potential from current levels.
Conclusion
While concerns about the impact of a looming recession on demand and oil prices remain, several analysts continue to be optimistic about further upside potential in Exxon stock even after a stellar run so far this year.
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