7 Oct

ExxonMobil Stock: Berenberg Cut Target Price before Q3

WRITTEN BY Maitali Ramkumar

Berenberg cut its target price on ExxonMobil (XOM) stock from $73 to $63, according to Reuters. The revised target price implies an approximately 9% loss in ExxonMobil stock from its current level.

According to Reuters, Berenberg expects ExxonMobil’s underlying cash flows to be weak in 2019 with no improvement in 2020. The firm expects ExxonMobil’s upstream assets in Guyana and Mozambique to ramp up by 2025.

In the third quarter, ExxonMobil expects its earnings to cut in half year-over-year.

ExxonMobil stock mean target price

Analysts’ mean target price on ExxonMobil stock is $80. The target price implies about 16% upside from the current level.

So far, ExxonMobil stock has fallen 2.3% in October, which is in line with the equity market. The S&P 500 Index has fallen 0.8% in October due to recession fears. The decline in oil prices also hit the stock. WTI crude oil has fallen 2.3% in October.

ExxonMobil’s peers are also falling. Chevron (CVX), Royal Dutch Shell (RDS.A), and BP (BP) stocks have fallen 4.0%, 2.6%, and 2.7% in October. Integrated energy stocks fell in the last quarter. To learn more, read A Q3 Wrap-Up for Energy Stocks: BP, XOM, CVX, RDS.A.

Lower third-quarter guidance impacts ExxonMobil stock

ExxonMobil stock is also being impacted by its lower third-quarter earnings guidance.

The company expects lower liquids prices to dent its upstream earnings by $400 million–$700 million in the third quarter. Brent, WTI, and WCS oil prices fell by $6.5, $3.5, and $3.5, respectively, per barrel in the quarter.

ExxonMobil expects narrower oil spreads to impact its downstream earnings by $100 million–$300 million. In the third quarter, WTI Houston-WCS spread fell by $2.9 per barrel. The WTI Houston-WTI Midland spread fell by $5.1 per barrel in the quarter.

Overall, ExxonMobil expects its earnings to be around $3.1 billion in the third quarter. In the third quarter of 2018, the company’s profits were $6.2 billion. So, ExxonMobil’s guidance reflects about 50% YoY decline in its third-quarter earnings.

Analysts’ third-quarter forecast

Analysts expect ExxonMobil’s EPS to fall 48% YoY to $0.76. They expect Chevron, Shell, and BP’s earnings to fall 17%, 15%, and 35% YoY, respectively. Read XOM, CVX, RDS, BP: Will Energy Earnings Fall in Q3? to learn more.

ExxonMobil’s second-quarter earnings

In the second quarter, ExxonMobil’s earnings fell 21% YoY to $3.1 billion. The lower profits were due to a 38% YoY and 79% YoY decline in the downstream and chemical segments’ earnings, respectively. Weaker margins and higher turnaround and maintenance activities impacted the earnings.

However, ExxonMobil’s upstream segment’s earnings rose 7% YoY to $3.3 billion in the second quarter. The company’s upstream earnings rose due to better hydrocarbon output.

ExxonMobil’s upstream production rose 7% YoY to 3.91 million barrels of oil equivalent per day. A higher liquids volume in the Permian and larger output in Hebron drove ExxonMobil’s production growth. The company’s main upstream assets are in the Permian Basin and offshore Guyana. To learn more, read ExxonMobil and Chevron: Upstream Portfolio Positioning.

Analysts’ ratings and target price

Analysts have diverse opinions about ExxonMobil stock. Among the 25 analysts that rate ExxonMobil, five recommend a “buy” or “strong-buy,” 19 recommend a “hold,” and one recommends a “sell.”

Chevron is rated positively by 18 out of 25 Wall Street analysts. Chevron’s mean target price of $138 implies a 21% upside from its current level. Shell and BP are rated as a “buy” by eight out of 12 and seven out of 12 analysts, respectively. Shell and BP’s target prices at $77 and $50 imply 34% and 35% upside, respectively.

Read ExxonMobil or Chevron: Which Is the Better Buy? to learn about the investment opportunity in energy stocks.

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