BofA Raises ExxonMobil, Chevron Price Targets Following Earnings Beats

Exxon Mobil Corp XOM and Chevron Corporation CVX reported better-than-expected earnings for the second quarter.

Both these energy majors exhibited robust operating leverage, according to BofA.

The Exxon Mobil Thesis

Analyst Doug Leggate reiterated a Buy rating on ExxonMobil, while raising the price target from $120 to $123.

The company’s second-quarter earnings underlined “the momentum building behind its portfolio investment over the past six years, but also the improved operating leverage enabled by a portfolio mix that is biased towards downstream exposure at 1.8x oil production and some more than $6bn of cost reductions underway over the past three years,” Leggate said in a note.

“Record free cash flow was expected – but with another $8bn knocked off net debt, to levels last seen in 2014 and less than half the absolute level reached during peak COVID, we believe XOM’s free cash flow trajectory will continue to lead the major oils and expanded by share buy backs that almost certainly accelerate once management’s targets for cash balances are achieved ($20bn - $30bn which we expect by 3Q22), which would drop net debt / cap below 10%,” the analyst further wrote.

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The Chevron Thesis

In a separate note, analyst Leggate maintained a Buy rating on Chevron, while raising the price target from $178 to $180.

“CVX’s operational leverage was on show in 2Q22,” Leggate said in the note. He added that the second-quarter print underlined “the combination of capital discipline, timely acquisitions and the operational leverage enabled by an oil weighted portfolio that dominated earnings again this quarter.”

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The “earnings beat was entirely downstream, noting incremental exposure through the 2019 acquisition of the Pasadena refinery in Texas and a potent reminder that with additional closures planned in California in 2023, CVX’s primary refinery exposure will be in a structurally short gasoline market for the first time in 20 years,” the analyst stated.

XOM, CVX Price Action: Shares of both Exxon Mobil and Chevron were trading lower by almost 2% at the time of publication Monday.