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Truist forecasts ExxonMobil shares to lag behind peers; rating downgraded to hold

Published 2024-06-07, 10:50 a/m
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On Friday, Truist Securities adjusted its stance on ExxonMobil (NYSE:XOM), moving from a "Buy" to a "Hold" rating, while also revising the price target downwards from $146.00 to $124.00. The shift in rating comes as the analyst anticipates the company's shares might lag behind its competitors in the near term due to its current market valuations and the recent acquisition of Pioneer.

The analyst acknowledged the significance of ExxonMobil's Guyana operations and the Pioneer acquisition as positive developments. However, they project that the company's free cash flow (FCF) yield will remain below that of its peers until at least 2025. This projection is partly based on the belief that the company is still in the process of integrating Pioneer's operations, a phase often referred to as "digestion" in the industry.

Despite ExxonMobil announcing an increase in its shareholder return program, the analyst suggests that this might not be sufficient to outpace the performance of other companies in the same sector. The analyst expressed concerns that the upcoming decisions by OPEC+ regarding oil production could exert downward pressure on the market, potentially prompting investors outside of the energy sector to divest their holdings in ExxonMobil.

The revised price target reflects a decrease in confidence that the stock will perform as well as previously expected. The new target of $124.00 represents a notable decrease from the former $146.00 target, indicating a more cautious outlook for the company's stock performance in the immediate future.

In other recent news, Exxon Mobil is facing potential scrutiny from the Department of Justice (DOJ) following a request by U.S. Senate Majority Leader Chuck Schumer and 22 other Democratic Senators.

The request for an investigation into possible collusion and price fixing with the Organization of the Petroleum Exporting Countries (OPEC) comes in the wake of allegations against former Pioneer CEO Scott Sheffield for attempts to conspire with OPEC to inflate oil prices. The DOJ has yet to publicly respond to the senators' request.

Simultaneously, Exxon Mobil, in conjunction with Shell (LON:SHEL), is nearing a $500 million sale of their jointly-held gas fields in the southern North Sea (NYSE:SE) to Viaro Energy. This move marks a further shift by major oil and gas entities away from the mature North Sea region. Neither Shell, Exxon Mobil, nor Viaro Energy have issued public comments regarding the negotiations.

In a separate development, Chevron Corp (NYSE:CVX)'s proposed $53 billion acquisition of Hess Corp (NYSE:HES) is currently under consideration by Hess shareholders. The deal's progress has been hampered by an ongoing regulatory review and an arbitration dispute with Exxon Mobil Corp (NYSE:XOM). The acquisition bid by Chevron was put into question after Exxon and CNOOC (NYSE:CEO) initiated an arbitration claim against the sale.

Meanwhile, Exxon Mobil has received support from officials of 19 Republican-led states amidst a lawsuit filed against climate activists Arjuna Capital and Follow This. The officials have urged major financial institutions not to vote against Exxon's directors.

InvestingPro Insights

Amid the recent rating change by Truist Securities, ExxonMobil (NYSE:XOM) shows a robust financial backdrop that may interest investors. According to InvestingPro, ExxonMobil has a track record of raising its dividend for an impressive 54 consecutive years, which could be a key consideration for dividend-seeking investors. Additionally, the company's stock is known to exhibit low price volatility, providing a potentially stable investment amidst market fluctuations.

InvestingPro Data reveals that ExxonMobil has a market capitalization of $451.87 billion, underscoring its significant presence in the market. With a Price/Earnings (P/E) ratio of 12.95 for the last twelve months as of Q1 2024, the company is trading at a valuation that may appeal to value investors, especially when considering the industry's average. Moreover, the company's dividend yield stands at 3.33%, which is competitive in the current investment landscape, offering a tangible return to shareholders.

For investors who are considering ExxonMobil as part of their portfolio, there are 7 additional InvestingPro Tips available that could provide deeper insights into the company's financial health and market position. To access these tips and take advantage of a comprehensive analysis, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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