On Wednesday, Barclays initiated coverage on shares of ExxonMobil (NYSE: NYSE:XOM), assigning an Overweight rating and setting a price target of $147. The firm's analysis suggests that ExxonMobil may be at the beginning of a significant earnings period, fueled by favorable pricing and margins, growth in strategic assets, and substantial capital investments.
ExxonMobil's position is expected to be strengthened by material growth in cost-advantaged upstream production, margin expansion through full value chain integration, and a more efficient organization structure. Additionally, the company's burgeoning low-carbon segment is anticipated to contribute to returns and aid in emission reductions.
In the United States, ExxonMobil's pending acquisition of Pioneer Resources, which is forecasted to close in the third quarter of 2024, and the completed acquisition of Denbury Resources (NYSE:DEN) on November 2, 2023, are set to bolster its presence as an energy leader in the Gulf Coast region. This is complemented by expansion projects in downstream and chemicals sectors.
Internationally, ExxonMobil is expected to benefit from its operations in Guyana, Brazil, and the liquefied natural gas (LNG) market, which are projected to drive upstream margin growth. Barclays believes that the current market estimates for ExxonMobil's earnings power are significantly lower than what the company could actually achieve.
According to Barclays' projections, from 2024 to 2027, ExxonMobil could generate nearly $180 billion in free cash flow, equating to an approximate 9% average free cash flow yield. This could potentially result in a total cash return of almost $160 billion over the next four years, a level of return comparable to the 2008 super cycle.
Furthermore, when compared to the S&P 500, ExxonMobil's stock is trading at a 45% discount on a forward price-to-earnings basis. This is notably wider than the 5-year historical average discount of around 18%. The price target of $147 is based on a sum-of-the-parts valuation, applying a 7x EBITDX multiple to the upstream, refining and marketing, and chemicals divisions, and a 12x multiple to the Specialty Products division, which is expected to yield higher returns.
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