Exxon Mobil Corp. (XOM): Analyst meeting reinforces bullish oil view, XOM the ROCE leader - Goldman Sachs - March 06, 2008
What's changed
Exxon Mobil hosted its annual analyst meeting at the New York Stock Exchange on March 5. The company announced a meaningful increase in capital spending and effectively a flattish E&P production growth outlook (note: the company does not have an official production target).
Implications
Exxon’s analyst meeting reinforced our bullish oil macro view, as the multi-year trend of higher capital spending and disappointing non-OPEC growth appear to be firmly on-track. Exxon’s volume indications in fact suggest that the great flattening in non-OPEC production may be near. As for Exxon, on a short-term basis, the company’s announced jump in capital spending coupled with an effectively flat E&P volume outlook we think will keep the shares from experiencing meaningful outperformance relative to the Energy sector. As such, we maintain our Neutral rating on Exxon shares and continue to prefer various E&P, refiner, and domestic integrated oil stocks. Longer-term, Exxon is now the undisputed leader in terms of profitability, returning cash to shareholders, and operational execution. In recent years Exxon has significantly widened the gap versus its peers on profitability metrics to the extent that we would now consider it perhaps the last true “super-major.”
Valuation
We see 8% upside potential to our unchanged, $93 12-month target price, which is based on asset value, P/E and cash flow valuation analyses.
Key risks
Key risks include sustained lower commodity prices and broader market weakness. |
