A new activist investor firm called Engine No. 1 is leading an effort from frustrated investors to overthrow ExxonMobil’s board of directors, according to CNN Business.
The shareholders are calling for the company to curb spending, revamp executive salaries and transform its operations into more environmentally friendly practices. They have also harshly criticized Exxon’s long-term capital allocation strategies.
ExxonMobil (XOM) was once the world’s most valuable public company, but its market value has disintegrated by $266 billion since 2014. ExxonMobil got expelled from the Dow Jones Industrial Index after 92 years of inclusion earlier this year.
Shareholders of the company have become increasingly agitated in recent years, especially with regards to its climate change policies, and Engine No. 1 has identified four potential candidates who have agreed to be nominated to the Exxon board if necessary.
In a letter sent to the Exxon board last week, Engine No. 1 wrote, “We believe that for ExxonMobil to avoid the fate of other once-iconic American companies, it must better position itself for long-term, sustainable value creation.”
ExxonMobil’s moves have largely been criticized, with it entering the US shale boom extremely late, opting to instead invest in complex overseas projects that failed to come to fruition. Exxon’s takeover of XTO Energy for $41 billion has also been slammed as an “epic failure,” with natural gas now trading at less than half the price of when the acquisition was completed in 2009.
Exxon has failed to follow in the footsteps of European oil majors including Royal Dutch Shell and BP, who have both made significant investments into renewable energy projects. (See XOM stock analysis on TipRanks)
Goldman Sachs analyst Neil Mehta upgraded his rating to a Buy yesterday, raising his price target from $42 to $52 (21% upside potential). Mehta acknowledged Exxon’s potential for capital cost reduction and its improved free cash flow relative to its historical performance as some of his motivations.
Consensus among analysts is a Hold based on 3 Buys, 7 Holds and 1 Sell. The average price target of $46.50 implies a potential upside of around 8% over the next 12 months.
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