When shares of Exxon Mobil (NYSE:XOM) fell to around $30 last month, markets more than discounted the headwinds this vertically integrated energy firm faced. But even at current levels, Exxon Mobil stock is an attractive value energy play for the patient investor.

As oil prices recover from multi-decade lows, so too will Exxon. But to play it on the safe side, assume a downside scenario first. Besides, a truce between Russia and Saudi Arabia may not happen for a while (at least as of April 10). Or the two sides may find an agreement somewhere in the middle.

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Exxon Mobil stock cost long-time income investors plenty of capital losses. As long as investors do not sell the stock and instead collect the quarterly dividends, those are paper losses. Patient investors have the benefit of time to wait out the battle between Moscow and Riyadh. Both countries will suffer from economic losses so long as the coronavirus pandemic weighs on oil demand.

Hopes of Production Cuts

Hopes earlier this month of a 10 million barrel cut in those two nations put an end to the drop in energy prices. The quick response from the stock market sent West Texas Intermediate crude prices up by ~25%. The market did not need any confirmation of any deal to spark a rally. This suggests that the oversold sector found buyers willing to bet that producers will eventually cut output.

U.S. production is already shrinking as weak firms file for bankruptcy. Whiting became the first U.S. shale producer to file, cutting its debt by $2.2 billion. In return, it will exchange some notes for 97% of stock. Shareholders will end up owning only 3% of the restructured firms. So, they are effectively wiped out. As a result, the sector should expect a sharp decline in U.S. drilling and oil production.

Exxon is cutting output. A production cut of 502,500 barrels per day at Baton Rouge will lower the oil firm’s operating cost. By reducing the number of contract workers by 1,800, Exxon will get closer to adjusting output to match demand levels.

New Debt Issuance

Exxon’s $8.5 billion in new debt will effectively lower the firm’s borrowing costs. Though the company has a debt-to-equity ratio of 0.25 times, the new debt will take advantage of the sharp drop in interest rates. The firm may use the proceeds to further solidify its balance sheet. That way, it has enough cash to keep operations running despite the unfavorable market conditions. Plus, as more weak firms file for bankruptcy, Exxon may buy assets at highly distressed levels. This would position it to grow revenue once the sector recovers.

Exxon also alleviates potential cash crunch risks ahead. Given the collapse in the sector, lenders may balk at issuing debt to energy firms. So, by getting access to capital now, investors need not worry about its financial health.

Valuation on Exxon Mobil Stock

Based on 23 analysts covering Exxon Mobil stock, the average price target is $44.37 (according to FactSet Research data). Still, 16 of those analysts rated the stock a “hold.” In fact, that’s been the consensus for the past three months.

Investors may forecast an oil rebound within the next two fiscal years. So, suppose that revenue drops in the double-digit percentages in that time and then rebounds in a 10-year discounted cash flow revenue exit model:

Data courtesy of finbox.io

Data courtesy of Stock Rover

In the above table, Exxon compares well against its peers, Chevron (NYSE:CVX) and Royal Dutch Shell (NYSE:RDS-A)

This would suggest that Exxon Mobil’s stock is worth $51.28. This represents a decent return compared to its recent closing price of $43.13.

Chris Lau, contributing author for InvestorPlace.com and numerous other financial sites. Chris has more than 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.