Exxon Set To Make Up To $20B Writedown In 4Q; Merrill Sees 78% Upside

Exxon Mobil Group disclosed that it is poised to write down as much as $20 billion on its upstream assets, even as the oil major experienced an improvement in chemical margins fueled by an increase in oil and gas prices during the fourth quarter.

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According to an SEC filing, Exxon (XOM) expects to write down between $18 billion and $20 billion. In the update on how the fourth quarter was affected relative to the previous quarter, the oil giant indicated that it anticipates higher oil and gas prices to help boost upstream operating results by between $200 million to $1 billion.

In addition, higher chemical margins are poised to lift earnings of Exxon’s chemicals segment by between $200 million to $400 million. Meanwhile, the company adjusted to smaller non-cash impairments in its refining segment, but still expects to post an operating loss in refining.

Exxon is scheduled to report its full quarterly results on Feb. 2. Analysts forecasted the company to incur an adjusted fourth-quarter loss of $3.47 billion, or $0.61 per share, compared with a profit of $5.69 billion, or $1.33 per share in the year-earlier period.

Shares in XOM have plunged 40% year-to-date as the fast spread of the coronavirus pandemic has curtailed energy demand and oil prices dropped, spurring production cuts. Looking ahead, the average analyst price target stands at $47.33, indicating 14% upside potential over the coming year.

Following Exxon’s update, Merrill Lynch analyst Doug Leggate reiterated a Buy rating on the stock with a Street-high price target of $74 (78% upside potential), saying that XOM is his major oil pick for 2021.

“Three of the four have improved significantly leaving only refining as the primary headwind, but one of the areas we expect greatest improvement in 2H21,” Leggate wrote in a note to investors. “While we expect another quarterly cash burn, we believe XOM is past the worst with cash flow balanced after dividends in 2021, and longer-term cash flow growth preserved.”

The rest of the Street is sidelined on the stock with a Hold analyst consensus. That’s with 6 recent Hold ratings, 1 Sell rating vs 3 Buy ratings. (See XOM stock analysis on TipRanks)