Shares of Exxon Mobil (NYSE:XOM) are in the green following an upgrade from Evercore ISI analyst Stephen Richardson. The analyst raised his rating from “in-line” to “outperform” and his price target from $88 to $120.
Shares of XOM stock are up more than 60% this year as the price of oil continues to soar higher. The price of West Texas Intermediate (WTI) oil is at $118, up about 55% compared to $76 at the beginning of the year. Meanwhile, the national average price for regular gas is at $4.92 compared to $3.05 a year ago.
In times of inflation when product demand outpaces supply, the prices of commodities used to create those products increases as well. With summer set to officially begin later this month, consumers are more inclined to travel. Exxon Mobil can pass these increased costs on to customers, which explains why gas prices have surged so much.
With that in mind, let’s get into the details of the Exxon Mobil upgrade.
XOM Stock: Evercore ISI Sets Price Target At $120
Richardson still believes XOM stock is cheap and notes its current valuation is more than 20% below the levels seen between 2011 and 2014. In addition, the analyst sees returns on capital employed (ROCE) rising by 15% by 2025 and by 17% by 2027.
In the long term, Richardson believes earnings growth should be helped by upstream upgrading in countries like Brazil and Guyana. $5 billion in secured structural cost improvements, as well as an additional $4 billion to come, will help as well.
Switching to the short term, the analyst added an upside revision to second-quarter and full-year earnings. Rising gas and oil prices combined with “record refining margins” should help buoy XOM higher. Richardson also points out that “XOM has the most exposure to downstream amongst the Big Oils.”
Evercore ISI isn’t the only firm to recently raise its price target. On May 31, Barclays analyst Jeanine Wai raised her price target to $110 from $98. The analyst’s Q2 earnings per share (EPS) estimate is 5% above consensus estimates while her cash flow per share (CFPS) estimate is 4% below consensus. Meanwhile, Wai’s total production and oil production estimates are 1% below consensus.
Exxon Mobil has an average price target of $96.93 among 26 firms with coverage of the company.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
