The recent decline in Exxon Mobil shares is a great buying opportunity, according to Bank of America Merrill Lynch.
The firm reiterated its buy rating for Exxon Mobil shares and added the company to its US1 top ideas list. It cited the company's financial strength and strong cash flow.
"Unlike CVX and its European super major peers, Exxon Mobil's cash flow covers dividends and a projected capital spending that underpins a growth outlook that is unprecedented amongst the large cap US oils," analyst Doug Leggate wrote in a note to clients Tuesday. "Our analysis suggests perceptions that higher spending delays a return of share buybacks are misguided, given capital efficiency of short cycle developments in the Permian and rapid cost recovery in Guyana that we believe remains substantially misunderstood."
The company's stock rose 2.9 percent Tuesday after the report. Exxon Mobil shares declined 7.8 percent this year through Tuesday versus the S&P 500's 0.6 percent drop.
Leggate reaffirmed his $100 price target for Exxon Mobil shares, representing 34 percent upside to Monday's close.
The analyst cited Exxon Mobil's target to double its cash flow by 2025. He estimates the company can generate a free-cash-flow yield of 10 percent before dividends if oil prices stabilize at $60 per barrel for a significant period of time.
The price of crude oil WTI rose 2.7 percent midday Tuesday to $65.10 per barrel.
"We believe Exxon Mobil has the capacity to restart buybacks in 2018 and could see potential upside from accelerating asset sales stalled through the downturn," he wrote.
— CNBC's Michael Bloom contributed to this story.