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On Thursday, Goldman Sachs analyst Neil Mehta downgraded Imperial Oil Ltd (TSX:IMO). shares from Neutral to Sell, maintaining a price target of Cdn$90.00. The decision comes after a period of strong performance, with the stock posting a 19.67% year-to-date return and trading near its 52-week high of $80.17. The company currently trades at an 8%/9% free cash flow yield based on 2025/2026 estimates, while the peer average stands at 10%/11%. According to InvestingPro data, the stock’s EV/EBITDA ratio stands at 6.72x, with a price-to-book ratio of 2.27x.
The downgrade reflects a reassessment of the company’s future value proposition. Despite acknowledging Imperial Oil (NYSE:IMO)’s strong operational execution at its major assets, Kearl and Cold Lake, the analysts believe that the stock’s value is less differentiated for the years 2025/2026. They project a lower capital returns yield relative to peers in the industry. InvestingPro analysis reveals the company has maintained dividend payments for 35 consecutive years, with current dividend yield at 2.71%. For deeper insights into Imperial Oil’s valuation metrics and peer comparison, subscribers can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
Goldman Sachs recommends that investors consider rotating into alternative Canadian oil companies. They highlight Canadian Natural Resources (TSX:CNQ) as a Buy-rated option, noting its relatively attractive free cash flow yield. This company is also nearing a dividend yield of approximately 6%, which is on par with levels seen during 2020-2021.
The downgrade and maintained price target by Goldman Sachs underscore a strategic shift in investment preference within the Canadian oil sector. Imperial Oil will continue to be monitored for its performance and capital returns, as investors seek opportunities with more favorable financial metrics.
In other recent news, Imperial Oil reported its fourth-quarter 2024 earnings, showcasing a mixed financial performance. The company exceeded earnings per share expectations with a reported EPS of $2.37, surpassing the forecast of $2.07. However, revenue fell short, coming in at $12.61 billion against a projected $14.15 billion. Goldman Sachs maintained a Neutral rating on Imperial Oil, setting a price target of Cdn$91.00, acknowledging the company’s adjusted cash flow per share of C$3.19, which exceeded expectations. Production for the quarter was steady at 460 thousand barrels of oil equivalent per day, aligning with market expectations. Additionally, Imperial Oil announced a leadership transition, with John Whelan set to succeed Brad Corson as chairman, president, and CEO in May 2025. The company continues to focus on strategic projects like the Kearl and Cold Lake growth initiatives and the Strathcona Renewable Diesel Project. These developments are occurring amid a backdrop of discussions on capital allocation strategies, including potential share buybacks and dividend increases.
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