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Why Are Wall Street Analysts Divided on ExxonMobil?

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Mar. 15 2018, Updated 7:31 a.m. ET

Analyst recommendations for XOM

ExxonMobil (XOM) stock is covered by 24 Wall Street analysts. Seven of them (or 29%) have given the stock a “buy” or “strong buy” recommendation. Twelve analysts (or 50%) have given it a “hold” rating. The remaining five (or 21%) have recommended a “sell” or “strong sell.” ExxonMobil’s mean target price of $86 per share implies a 16% gain from the current level.

Royal Dutch Shell (RDS.A), Chevron (CVX), and BP (BP) have been rated a “buy” by 91%, 78%, and 42% of analysts, respectively. Other global players, Statoil (STO), Petrobras (PBR), and YPF (YPF), have been rated a “buy” by 20%, 39%, and 92% of analysts, respectively.

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Why analysts hold a mixed opinion on ExxonMobil

ExxonMobil’s (XOM) expansion activities spread across its business segments are making its earnings model more integrated, protecting it partially from the volatility in the price of oil. The inorganic and organic growth strategy in its upstream segment will likely expand its upstream portfolio. ExxonMobil’s continuing expansion and modernization activities in its downstream (refining and chemicals) segment will presumably enhance its earnings for the downstream segment as well. Refer to Parts 1 and 2 of this series for a detailed discussion on the growth activities in both of these segments.

ExxonMobil’s strong financials denoted by lower debt and a surplus cash flow (see Parts 3 and 4 of this series) have been instrumental in the company’s ability to face a volatile oil price environment. That could be why the stock is commanding premium valuations compared to its peers. Market participants could already be factoring in XOM’s expected growth and sound financials in its stock price and valuations. That could also be why many analysts are recommending a “hold” or “sell” for the stock.

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