Exxon Mobil (NYSE:XOM) may have put a positive spin on its expenditure plans at last week’s investor day. But with oil prices weakening and its outlook unclear, Cowen analyst Jason Gabelman opted to downgrade XOM stock anyway.

XOM says it will spend $30 billion on drilling and improvement projects in 2019. This is up $4 billion versus last year’s capital expenditures.

Moreover, management expects that figure to rise to between $33 billion and $35 billion in 2020. It will further remain in that range through 2025.

The planned spending increases contrast, at least partially, with the intentions of Exxon’s rivals and those of the broader industry. Oil companies are becoming more cautious about their spending for understandable reasons. Since their mid-2018 highs of around $70, crude prices dropped to their current level of approximately $60.

Gabelman concedes that Exxon’s aggressive capital-expenditure budget may bear fruit for XOM, which operates in a highly cyclical, but slow-moving, industry. He’s concerned, however, that investors may only have a short-term view of those costs.

Eventually, they could put downward pressure on XOM stock that lasts for the foreseeable future.

XOM Stock Is All About the Permian

Although Exxon Mobil operates all over the world, one area represents the company’s key money-maker: West Texas’ Permian Basin. XOM has operated there for years, but management believes it underestimated the region’s potential. Prior forecasts of 600,000 barrels of oil equivalent per day have been ramped up to more than one million boe per day by 2024, if the company’s investments pan out as planned.

That growth of the Permian should also boost Exxon Mobil’s overall profitability, lifting XOM stock in the process. Excluding tax-reform benefits, the oil giant anticipates that its bottom line will increase by $4 billion this year. This possible figure contrasts favorably to last year’s $1.1 billion increase.

By 2025, Exxon Mobil believes its profits will be 140% higher than 2017’s total earnings. The production of its Permian Basin properties, which is continually rising, should be the biggest driver of that growth.

It’s the increasing production from the Permian, in fact, that serves as the foundation of Exxon’s optimism.

This logic seemingly contradicts an environment that doesn’t exactly seem great for XOM stock. However, Exxon Mobil’s senior vice president Neil Chapman explained at a recent shareholder meeting that ownership of contiguous properties “enables you to develop resources on a very large and very efficient scale, and it allows you (to) apply the Exxon Mobil machine.”

CEO Darren Woods described the company’s unusual current aggressiveness as “leaning in as our competitors are leaning back.” Woods believes their Permian assets will generate double-digit returns, even if oil prices fall as low as $35 per barrel.

Underscoring that idea is his decision to sell other assets, even as the company doubles down on the Permian Basin. The decision by XOM’s rival, Chevron (NYSE:CVX), to also aggressively invest in the region provides further evidence of its potential.

Not all observers are as keen on the strategy, though.

Tough Sell

Darren Woods isn’t necessarily wrong to be greedy when others are fearful. But the current and prospective owners of XOM stock may not be as enthused about the strategy.

The company needs to “convince the market that higher spending today translates to higher returns to shareholders over time,” explained RBC Europe Limited analyst Biraj Borkhataria following the unveiling of Exxon’s long-range plans and outlook. But that’s easier said than done.

Cowen’s Gabelman agrees, noting “XOM’s counter-cyclical investment decision may look prescient in future years, but we do not believe the investor community is willing to place that same bet today and are downgrading the stock as a result.”

Cowen lowered its rating on XOM stock to a “market perform,” Simultaneously, they droped its price target on Exxon Mobil stock from $100 to $75.

Regardless, Exxon may have no choice but to invest a great deal of money. CFRA analyst Stewart Glickman, discussing the company’s capital spending plans, said, “Exxon is so big it has to replace a lot of barrels every year. They’re probably thinking with a longer-term focus than most.”

Glickman also pointed out another potential but unspoken concern among the owners of XOM stock: other drillers have been able to increase their production despite cutting their spending.

Bottom Line on XOM Stock

The scenario, for all intents and purposes, forces investors to decide whether XOM stock is a long-term holding, or too subject to short-term ebbs and flows to be anything more than a swing trade.

For investors who can afford some patience, there’s little doubt that the intended expenditures will bear fruit. Meanwhile, the XOM stock price is up more than 23% from its December lows. Additionally, it’s trading five dollars higher than Gabelman’s new target price. At these levels, XOM looks ripe for some profit-taking.

Nobody wants to buy Exxon Mobil stock right now, but everyone will have a tough choice to make when shares drop. There’s little middle ground here, as XOM probably won’t be a trade and an investment at the same time.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.