Morgan Stanley Seees Tailwinds Building for ExxonMobil (XOM) Rerating
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Morgan Stanley analyst Devin McDermott reiterated an Overweight rating and $57.00 price target on ExxonMobil (NYSE: XOM) on the belief that tailwinds are building that should cause shares to re-rate for 3 reasons:
1) strong execution on cost and capex cuts, with further reduction potential
2) upside to consensus free cash flow estimates
3) yield compression underpinned by improving dividend coverage
The analyst stated "XOM now expects to be towards the lower end of its $16-$19 B 2021 capex range. Lower spending combined with $6B in structural cost reductions (half already achieved, with the remainder delivered by 2023) should put upward pressure on consensus free cash flow estimates, supporting further compression of the ~8% dividend yield. Lastly, management is taking a proactive approach on climate risks with a newly formed Low Carbon Solutions business, helping mitigate energy transition uncertainty while also offering new attractive growth options for the company".
Shares of ExxonMobil closed at $45.96 yesterday.
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