Oil stocks are hot this season, with oil prices on the rise amid concerns about the tight supply forecast and geopolitical issues in Russia and the U.A.E. Among the players that stand to benefit most is Exxon Mobil (NYSE: XOM).
The XOM stock has gone through some major crests and troughs over the last two years of the pandemic. December 2020 saw Exxon on the verge of declaring a dividend cut after suffering from a drop in oil and gas prices. However, the company emerged stronger in 2021, with a share price appreciation of 61.32% over the past year.
Additionally, a meaningful free cash flow outlook in 2022 looks encouraging as commodity prices boom.
What Makes Things Look Bright for Exxon in 2022?
Throughout the pandemic, RBC Capital Markets analyst Biraj Borkhataria was bearish on the stock because of its unfavorable position in the investment cycle as compared to its peers. However, current sector tailwinds are expected to offset internal headwinds this year.
Importantly, Borkhataria observed that Exxon has received more earnings upgrades from Wall Street analysts in 2021 than any of the other major players in the oil industry. The sector tailwinds are expected to drive more upgrades this year as well.
Moreover, the possibility of a prolonged strong commodity cycle is a positive. “On the gas front, LNG (liquified natural gas) markets have been particularly tight through the winter, and we expect the normalization to be a multi-year process. With this backdrop, we believe investor attention may shift away from majors’ transition plans, and towards core portfolio longevity,” observed Borkhataria.
Higher energy costs are expected to keep other industrial sectors under pressure. However, this is a boon for Exxon, which is known for its low-cost reserves.
Significantly, in Guyana so far, the company has discovered more than 10 billion barrel of oil equivalent (boe). For context, boe measures the amount of energy produced that is equivalent to the energy found in one barrel of crude oil. Exxon started its first production unit in the country in 2020 and intends to establish at least five more new production units.
Additionally, earlier this month, the company announced that its drilling operations in Guyana have resulted in the discovery of two offshore oil reserves. This has thrust the company into the limelight.
These positives led Borkhataria to regain some of his lost confidence in the stock, and he upgraded his rating on Exxon to Hold from Sell, with a price target of $90.
Wall Street consensus rating for the Exxon stock is Moderate Buy, based on 6 Buys and 8 Holds. The Exxon price target is $76.64 on an average basis.
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