Barclays Offers Pair Trade in Big Oil: Negative on ExxonMobil (XOM), Positive on Chevron (CVX)

ExxonMobil (NYSE: XOM) shares are down nearly 2% on the session on a double downgrade from Barclays to Underweight (from Overweight) and a new price target of $84 (from $91).

The negative XOM rating action is part of a larger deep-dive on the Americas Integrated Oil group, as analyst Paul Cheng remains 'Positive' on the sector and recommends clients "shift from XOM to COP and CVX." While Cheng takes no rating action on ConocoPhillips (NYSE: COP), he upgrades Chevron Corp. (NYSE: CVX) to Overweight ( from Equalweight) with a new price target of $135 (from $130).

Cheng contrasts the "attractive absolute valuation" of CVX relative to the unsustainable "historical valuation premium" on XOM to justify his outlook. Despite CVX shares underperforming since the end of 2017, CVX "fundamentals are improving at a faster pace" than other "mega major" peers. The opposite is true of XOM's upstream business, with the company's "underlying fundamentals" suffering a "structural deterioration due to two immense, ill-timed, low margin and extremely expensive investments, XTO and Kearl." Cheng believes XOM's upstream challenges could take "years or even a decade to overcome."

Cheng sees outperformance from the group over the next 12 months and points to COP, Sunoco LP (NYSE: SUN) and Canadian Natural Resources (NYSE: CNQ) as names with the potential to outperform the market.

The new price target on XOM represents 5.4% upside from Monday's close.

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