Is Exxon Mobil's Growth Potential Priced In? This Analyst Examines Valuation Amid Operational Improvements

RBC Capital Markets analyst Biraj Borkhataria reiterated a Sector Perform rating on Exxon Mobil Corporation XOM with a price target of $120.

XOM has more refining capacity than any of its peers, while the company has been investing in further capacity growth since the strategy reset a few years ago, the analyst notes. 

These investments are starting to bear fruit and could drive an underlying $10 billion in earnings growth by 2027 relative to 2019 under a constant margin scenario, Borkhataria adds. 

More recently, XOM has made significant strides in operational improvements downstream, with improved turnaround times, which has also led to an improvement in earnings.

XOM targets ~$16 billion in earnings by 2027 across the three downstream divisions, versus the analyst's updated estimate of $14.6 billion and consensus of $12.7 billion, Borkhataria notes.

Related: ExxonMobil Eyes $16B Profit Projection, Plans Shift To Chemicals Amid Fuel Surge

According to the analyst, XOM's growth potential across the upstream and downstream is differentiated relative to peers; however, the company screens relatively expensive, trading on a ~8x EV/DACF under a $70/bbl scenario. 

Borkhataria thinks some of the growth potential, as well as recent refining strength, is reflected in the current share price and sees better value elsewhere in the sector. 

The analyst updated the estimates with a 1% reduction to 2025 EPS, primarily driven by specialty products. 

Price Action: XOM shares are trading lower by 1.3% to $114.86 on the last check Thursday.