Why RBC Capital Upgrades Exxon Mobil, Downgrades Chevron

Exxon Mobil Corp XOM is the largest oil company by market capitalization and the biggest of the “Super-Majors,” which includes Chevron Corporation CVX, according to RBC Capital Markets.

The Energy Analyst: Biraj Borkhataria upgraded the rating for Exxon Mobil from Sector Perform to Outperform, while raising the price target from $90 to $100. In a separate note, analyst Borkhataria downgraded the rating for Chevron from Outperform to Sector Perform, while raising the price target from $160 to $165.

The Energy Thesis: Exxon Mobil is likely to be among “the key beneficiaries of a tight refined oil products market,” Borkhataria said in the upgrade note.

“In recent years, the market has focussed more on energy transition capex than core businesses, an area where XOM appeared to be ‘lagging’ peers,” the analyst wrote. Now that the scenario has changed, Exxon Mobil has two key advantages relative to peers: it is the world’s largest refiner and the company “screens well on upstream portfolio longevity, an area we expect to be under increased scrutiny in a high commodity price environment,” he added.

On the other hand, Chevron’s stock has “rallied more than any other major in recent months, and we believe part of this has been a ‘safety trade’ alongside strong commodity prices,” Borkhataria mentioned in the downgrade note.

“While we expect commodity prices to remain strong, we think the current valuation leaves less room for positive surprise, while headwinds with Tengiz realisations could weigh on earnings relative to peers,” he added.