XOM - Exxon Mobil: ~12% Mid-Term EPS Growth Justifies Premium Valuation

2024-05-01 15:53:07 ET

Summary

• Exxon reported a soft Q1 with earnings down 29% YoY as refining income declined by 67% on significantly weaker margins while upstream remained resilient despite weak gas pricing.
• Management introduced its new mid term target to grow cyclically adj. upstream unit earnings by ~50% to $13/boe by 27E in a $60/bbl Brent baseline environment.
• At current Brent pricing estimates, I see upstream EPS growing at ~13% CAGR through 27E, driving annualized WholeCo EPS growth of ~12% vs peer average of ~3%.
• I reiterate my Overweight rating but slightly adjust my price target to $136 on an updated valuation method in line with the rest of my Oil & Gas coverage for 15% price upside.

I published my first note on Exxon Mobil Corporation ( XOM ) in October 2023 when I initiated shares with an Overweight rating amid favorable oil tailwinds, a best-in-class balance sheet and management's strong track record in delivering capital returns and structural cost savings. I also liked Exxon's proposed acquisition of Pioneer, highlighting management's strategy to build up an asset base centered around three core growth positions in Guyana, LNG and the US Permian basin, the latter heavily reinforced through the deal....

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