Exxon Mobil upgraded as Raymond James anticipates the return of share buybacks

Key Points
  • Raymond James upgraded shares of Exxon Mobil, saying the dividend yield is the highest in decades.
  • The investment bank also says there's a "decent chance" the oil giant will start buying back stock from shareholders.
Luke Sharrett | Bloomberg | Getty Images

It's time to stop betting against oil and gas giant Exxon Mobil, Raymond James said in a research note on Monday.

The investment bank upgraded shares of Exxon from "underperform" to "market perform," saying the dividend payment to shareholders looks attractive. Investors also stand to benefit as Exxon potentially begins to buy back the stock from shareholders.

The firm had taken a bearish view on Exxon due to challenges in its European natural gas operations, "lackluster" growth in oil and gas production, a pricey acquisition in U.S. shale fields and the lack of share buybacks.

Shares of Exxon are down 5.6 percent this year, while the S&P 500 energy sector is up about 1 percent. Exxon's stock price was higher in premarket trading but was down slightly after the opening bell on Monday.

Thanks to the slump in Exxon's stock price and the recent improvement in profits, the dividend is now yielding 3.9 percent, the highest in decades, Raymond James says. The firm also sees a "decent chance" Exxon will start buying back shares in the "near future."

"At this point, and in the context of oil prices that are within striking distance of what we envision to be cyclical highs over the next 6 to 12 months, we think the Exxon short has essentially run its course," Raymond James analyst Pavel Molchanov wrote.

Raymond James also raised its full-year forecast for oil prices. It expects international benchmark to average $73 a barrel in 2018 and sees U.S. crude fetching $68 a barrel. It notes that shares of Exxon tend to perform better against a relatively stable oil price backdrop.