UPDATE: Morgan Stanley Downgrades Exxon Mobil to Underweight on Expected Underperformance

In a report published Wednesday, Morgan Stanley analyst Evan Calio downgraded the rating on Exxon Mobil Corporation XOM from Equal-Weight to Underweight, and lowered the price target from $90.00 to $85.00. In the report, Calio noted, “CVX to outperform XOM by 55% over the next 5 years (total returns). We believe the combination of CVX's relatively higher production growth (+5% CAGR) and relatively improving returns (to +20% ROCE in 2017) in each of the next 5 years will drive relative share price outperformance vs. XOM. We derive our stock price forecast by using our production growth forecast and downstream forecasts to project (1) cash flows estimates and returns on capital employed (ROCE) to predict (2) valuation multiples: with stock forecasted stock price being the product of these two forecast. Production growth is visible based upon the 15 top growth projects for CVX and XOM each that we detail, model, and sensitize in this report. We model returns for each project and believe CVX's projects drive 4% higher relative upstream ROCE on a 5-year basis.” Exxon Mobil Corporation closed on Tuesday at $90.04.