Bank of America analyst Doug Leggate boosted Exxon Mobil Corporation (NYSE: XOM)’s shares on Tuesday after issuing a buy recommendation and predicting a 12-month price target of $ 90. As a result, Exxon is expected to rise nearly 40% from its closing price of $64.10 on Wednesday. In the first half of 2021, Exxon shares rose 56%.
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Shares of Exxon have not been the only ones in the oil and gas industry to rise over the past year. Shares of Chevron (CVX) are up 30.6% year to date as well. During the economic recovery that followed the global crisis of 2020, oil demand increased. As a result, the OPEC + group of countries (OPEC and its oil production allies) agreed to reduce production volumes gradually. A similar decision was made at their last meeting on June 1. In light of these circumstances, investors expect future oil demand to exceed supply, at least shortly. As a result, prices for crude oil recently exceeded $ 71.78 a barrel for the first time since October 2018.
Along with the high valuation by Bank of America analysts, Exxon shares on Tuesday received a target price increase from Credit Suisse analyst Manava Gupta to $ 72. Gupta retained a neutral rating to Exxon, noting that demand for petroleum products is approaching pre-pandemic levels. At the same time, the significant positive change in the free cash flow of Exxon Mobil was not sufficiently appreciated by investors.
In its first quarter, Exxon Mobil Corporation (NYSE: XOM) earned $ 2.7 billion, up from a loss of $ 20.1 billion the previous quarter, while its operating cash flow rose by 48% to $ 9.3 billion, which led to a reduction in debt by more than $ 4 billion. According to Chairman and Chief Executive Officer Darren Woods, “During the quarter, cash flow from operating activities completely covered dividends and capital expenditures. In addition, by reducing our debt during the quarter, we strengthened our balance sheet.” Although the US’s largest oil company had $20.1 billion more in net debt in 2020 than in 2019, it will pursue further debt reductions. Bank of America analyst Doug Leggate believes the recent changes to the Exxon board of directors will contribute to this.
One of Exxon’s most prominent investors, Hedge Fund Engine No. 1, won a ballot that put three seats on Exxon’s Board of Directors to guide the company on reducing climate risks and carbon emissions. Nevertheless, Leggate indicated that large investors voting for new candidates did not take climate change into account. According to the analyst, Woods’ new directorship will influence Capex’s decisions and emphasize spending discipline to channel more money to shareholders.
Last year, Exxon Mobil Corporation (NYSE: XOM) did not raise its dividend after growing it for 37 straight years. However, Leggate expects the company to increase its dividend by an average of 5% per year for the remainder of the decade. If dividends continue to grow at this rate, in that case, Exxon will have paid out more than $ 23 billion in dividends by 2030, but this could be offset by a significant increase in operating cash flow to $ 47 billion from $ 37 billion this year. As a result, the dividends and capital expenditures will be covered, while the net debt will be almost zero. In the long-term, forecasts will be correct if, as estimated, the price of Brent crude will average $60 per barrel, and that of WTI crude will average up to $ 56 per barrel.
