Oil stock Exxon Mobil (NYSE:XOM) has confirmed its deal for Pioneer Natural Resources (NYSE:PXD), and investors couldn’t be much more enraged. That may sound contradictory, or at least unexpected, but following the deal’s announcement, shareholders pulled out and took over 4% of Exxon Mobil’s market cap with them.
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That’s the biggest one-day percentage drop that Exxon has seen since March, reports note, and it’s clear that investors aren’t happy. The deal, an all-stock deal valued at $59.5 billion, gives Pioneer shareholders 2.3234 shares of Exxon for every share of Pioneer. Exxon shareholders were likely not especially happy about the roughly 14% dilution effect that move would cause, nor about the extra 540 million shares that Exxon will have to issue in order to pay for Pioneer. However, Exxon tried to put a bright face on the matter by noting that its own strong balance sheet, coupled with Pioneer’s free cash flow, should make for better shareholder returns going forward.
Indeed, with the acquisition of Pioneer, Exxon would be the leader in the Permian Basin, regarded by some to be a major cache of accessible oil. Given current gas prices, that means a very nice leg up for Exxon’s likely outcomes going forward. Plus, Exxon’s CEO, Darron Woods, doesn’t expect much regulatory hassle to come out of the acquisition, either. Despite the fact that Exxon will be bigger in the Permian Basin as a result, Woods still regards Exxon as “…a small player in what is a very large market.” Whether the SEC agrees remains to be seen, especially these days, however.
Is Exxon Mobil a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on XOM stock based on nine Buys and seven Holds assigned in the past three months, as indicated by the graphic below. Furthermore, the average XOM price target of $126.88 per share implies 19.95% upside potential.
