This Analyst Downgrades Imperial Oil, Slashes Price Target On Gloomy Commodity Outlook

  • RBC Capital analyst Greg Pardy has downgraded Imperial Oil Ltd IMO to Sector Perform from Outperform and cut the price target to C$78 from C$82 following the updated Global Energy Research commodity Price outlook.  
  • The analyst still believes in Imperial Oil's efficient leadership team, impressive operating performance, long-life-low-decline upstream portfolio, strong balance sheet, and commitment to shareholder returns.
  • Pardy projects net production at 75,500 bbl/d (86% utilization rate) in Q1 2023, with expected upstream production of 413,400 boe/d.
  • He expects capital spending of C$413 million and net debt of C$643 million (including net working capital). 
  • The analyst projects operating cash flow at C$1.5 billion, with FCF (before dividends and working capital movements) of C$1.1 billion. 
  • IMO trades at a debt-adjusted cash flow multiple of 5.5x and a free cash flow yield of 14% of 2023 estimates. 
  • The bull case price target of C$94 reflects a 60% weightage toward a multiple of 1.3x of upside NAV and a 40% weightage toward a 2023 estimated mid-cycle debt-adjusted cash flow multiple of 8.7x.
  • The bear case price target of C$40 reflects a 60% weightage toward a multiple of 0.7x of downside NAV and a 40% weightage toward a 2023 estimated mid-cycle debt-adjusted cash flow multiple of 5.7x.
  • Price Action: IMO shares are trading higher by 1.75% $55.70 on the last check Wednesday.
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