Morgan Stanley Upgrades Exxon Mobil For Improving FCF Outlook, Dividend Sustainability

Exxon Mobil Corporation’s XOM spending reductions and margin expansion should help the company beat free cash flow expectations and support dividends, according to Morgan Stanley.

The Exxon Mobil Analyst: Devin McDermott upgraded Exxon Mobil's stock from Equal-Weight to Overweight, while raising the price target from $49 to $57.

The Exxon Mobil Thesis: With oil prices plummeting in 2020, the company deferred its countercyclical growth plans and reduced its capital expenditure for 2022 to 2025 from $30-$35 billion to $20-$25 billion, McDermott said.

“On top of this, management has disclosed plans to cut cash operating costs by at least 15%, with complete details likely to be disclosed over the coming months,” McDermott wrote in the note.

“With the dividend and capex organically covered this year for the first time since 2018, we expect outsized yield compression vs. peers as energy markets recover post-Covid,” the analyst added.

Exxon Mobil’s stock has underperformed Chevron Corp. CVX by around 50% over the past five years, McDermott said, while adding, “After having a preference for CVX over XOM for the past several years, we are shifting our view.”

XOM Price Action: Shares of Exxon Mobil had risen by 3.2% to $46.92 at the time of publication.