Exxon To Axe 1,600 Workers in Europe; Merrill Lynch Says Buy

ExxonMobil will need to axe 1,600 positions across its affiliates in Europe to cut costs as the Covid-19 impact continues to take a toll on the energy giant’s operations.

Exxon (XOM) said that the staff reduction plans in Europe are part of an extensive global review and will be implemented by the end of 2021. The streamling measures “result from insight gained through reorganizations and work-process changes made over the past several years to improve efficiency and reduce costs”.

The oil giant did not disclose where the layoffs will take place but said that country-specific decisions will depend on the company’s local business footprint and market conditions.

“The impact of COVID-19 on the demand for ExxonMobil’s products has increased the urgency of the ongoing efficiency work” Exxon said in a statement. “Significant actions are needed at this time to improve cost competitiveness and ensure the company manages through these unprecedented market conditions.”

Exxon reconfirmed that Europe remains an important market for the oil major, “as evidenced by recent major investments”.

Shares in XOM have plunged 52% 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 $43.78, indicating 30% upside potential over the coming year.

Merrill Lynch analyst Doug Leggate last week reiterated a Buy rating on the stock with a $77 price target, saying that he continues to view XOM amongst the most undervalued of US oil majors.

Exxon’s recent “message from 3Q20 is that the worst is over, but until demand improves, earnings remain anchored to a recovery in demand and rebalancing of the commodity markets,” Leggate wrote in a note to investors. “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.”

“However the key issue for investor confidence is that XOM can navigate through the current cycle with its dividend intact,” the analyst added.

According to Leggate’s estimates, XOM will have a cash burn of around $2 billion in 3Q, eating into a $12.6 billion cash pile built over the past 6 months, but leaving debt / cap at 27%, which is the low end of global peers.

The rest of the Street is sidelined on the stock with a Hold analyst consensus. That’s with 7 recent Hold ratings, 2 Sell ratings vs 2 Buy ratings. (See XOM stock analysis on TipRanks)