ExxonMobil (XOM) PT Raised to $72 at Credit Suisse, Margin Rebound Underappreciated

Credit Suisse analyst Manav Gupta raised the price target on ExxonMobil (NYSE: XOM) to $72.00 (from $69.00) on the belief that as refined product demand starts approaching pre-pandemic levels, XOM’s refining results will demonstrate material FCF inflection, a point that remains underappreciated.

The analyst maintained a Neutral rating, stating "While some of XOM’s peers have been selling refining assets at the bottom of the cycle at distressed valuations, XOM has actually been investing in its refining assets. We believe as the cycle turns these assets will make a positive FCF contribution to XOM and prove to be a portfolio differentiator vs. peers. Once refining margins normalize (3Q 21), we expect downstream (Refining + Chems) would cover 40-45% of the dividend obligation for XOM. This is a major positive, as downstream makes up only 25-27% of total capital employed by XOM, while upstream makes up 73-75% of total capital employed. With Brent over $70/bbl, refining margins rebounding, and chems margins well above midcycle levels, XOM could end up generating ~$2.5Bn per quarter in discretionary FCF (CFOcapex – dividend) between 2Q 21 and 4Q 21."

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