Goldman upgrades Exxon after years of underperformance, says shares are cheap

Published Wed, Dec 16 20207:57 AM ESTUpdated Wed, Dec 16 20204:11 PM EST

(This story is for CNBC PRO subscribers only.) For the first time since 2016, Goldman Sachs is recommending that investors buy Exxon shares. The firm upgraded the oil giant to a buy rating on Tuesday evening, highlighting Exxon's capital and cost reductions, as well as improving free cash flow. Goldman has a new 12-month price target of $52 on the stock, representing a 21% rally from Tuesday's closing price. Citing years of weak returns, lackluster earnings and other issues, analysts led by Neil Mehta said: "We see much of these risks as priced into the story and see low hanging fruit to make progress on each of these concerns." Mehta also pointed to value in the company's growth assets including in Guyana and the chemicals division, and said that the stock now looks cheap relative to peers. Exxon trades at roughly 10 times Goldman's 2022 estimates, compared with historically trading about 15 times forward estimates. "We believe investors are able to acquire the stock at a reasonable valuation level," the firm said. Additionally, Exxon has not only underperformed the broader market, but it has also underperformed relative to peers. For the year, shares are down 38%, while Chevron is down 26%. With oil prices trading at historic lows, Exxon has undergone a series of aggressive cost-cutting measures in recent months. In October the company said its global workforce could be reduced by as much as 15%, and the company has also slashed its capital spending program. For 2021 Exxon expects to spend $16 billion to $19 billion, down from forecasts of $30 billion to $35 billion. "While there are still challenges facing the business around the dividend burden, uncertain macro environment, and growth project execution, we believe the company has started to successfully address some low hanging fruit opportunities to improve the business including reducing the capital intensity and cutting costs," Goldman said. The firm previously had a neutral rating and $42 target on shares of Exxon. Following the Exxon upgrade, Goldman now has a buy rating on all five super majors, including Chevron, Total, Shell and BP. The firm believes these energy giants are well positioned for the energy recovery, and Goldman has a constructive view on crude. Shares of Exxon gained 1.53% on Wednesday. - CNBC's Michael Bloom contributed reporting.

A view of the Exxon Mobil refinery in Baytown, Texas.

Jessica Rinaldi | Reuters

(This story is for CNBC PRO subscribers only.)

For the first time since 2016, Goldman Sachs is recommending that investors buy Exxon shares.

The firm upgraded the oil giant to a buy rating on Tuesday evening, highlighting Exxon's capital and cost reductions, as well as improving free cash flow. Goldman has a new 12-month price target of $52 on the stock, representing a 21% rally from Tuesday's closing price.

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Goldman upgrades Exxon after years of underperformance, says shares are cheap

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